When most people think of Delaware, they think of corporate headquarters and the potential new residence of President Joe Biden. But lost amid the pre-election news cycle this fall was another big development from the nation's second-smallest state. Governor John C. Carney recently signed the Trusts Act of 2024 into law, which was a watershed moment for the world of estate planning and wealth management.

Trust Act 2024 enables families to use Delaware trusts to include beneficiary “welfare” and education programs to ensure a family legacy and endowment. Further, any family can use these trusts, regardless of income or where they live or own property. This first-of-its-kind statute adds another tool to Delaware's favorable trust laws, which help wealthy families take advantage of historically high exemptions from federal estate and gift taxes until they could be halved at the end of 2025.

Trusts are typically focused on financial management, with a trustee holding duties to invest as a prudent person and to make distributions to beneficiaries based on common standards of health, education, maintenance or support. Families making the difficult choice about taking the bonus exemption on trusts now have new Delaware law on their side to ensure a beneficiary's well-being.

What is included?

Delaware's new law provides that welfare beneficiary programs may include seminars, counselors, personal trainers, family meetings, family vacations and short-term university programs. These programs are designed to better prepare each generation of beneficiaries for their inheritance by providing them with financial literacy skills and educating them about their family history, family values, family governance, mental health and wellness, and family connections. .

Here's the key: The trustee of a beneficiary welfare trust must provide these programs at the trust's expense. And the law makes it possible to require beneficial welfare programs as an administrator's duty. The law also adds to the default powers of a trustee by allowing them to provide these services on a discretionary basis. Many in our profession have waited decades for such legislation to pass because so much estate planning is about giving wealth, not preparing the next generation to receive it.

Matters to consider

Despite these positive developments, the 2024 Trust Act has many potential landmines. Here are five issues you and your customers should consider when taking advantage of the new law:

1. Review of the letter of wishes. This is usually drafted by a trustee to assist trustees in understanding the trustee's intent regarding the discretionary terms of the trust's governing instrument, to articulate the trustee's intent regarding the interpretation of the terms of a governing instrument, or to assist fiduciaries in exercise of distribution discretion. The 2024 Trust Act amended several statutes to codify the concept of a letter of wishes in Delaware law and to address whether and to what extent a trustee or other fiduciary may consider a letter of wishes and the applicable standard of review to a trustee or other fiduciary in the exercise of his discretion to consider or not to consider such writings.

While this sounds like a great opportunity, compiling these documents requires great skill and a strong command of the language. These letters guide future trustees of multigenerational trusts. Communicating a resident's clarity of purpose will benefit a family. Do not rush the letter of wishes.

2. Ability to provide services. The Trusts Act 2024 allows trustees to create a beneficiary welfare trust that prepares the next generation for the responsibility of receiving and managing their family's wealth. As mentioned above, beneficiary welfare programs allow for various courses and educational opportunities to prepare each generation of beneficiaries for wealth inheritance. The focus is on navigating intergenerational asset transfers, developing wealth management and money skills, financial literacy, business fundamentals, entrepreneurship, family business knowledge, and philanthropy. The new law is also designed to educate beneficiaries about their family history, family values, family governance, family dynamics, and family health and mental well-being.

As an advisor, make sure it's clear whether you're equipped to provide any of these services or advice and whether your compliance department allows it. If so, make sure you know the costs and that the families you work with know who is qualified to provide these services.

3. New class of beneficiaries for whom a trustee can appoint as designated representative. Before 2021, designated representatives could only be appointed to represent and bind a beneficiary whose rights to be informed about their interest in a trust were limited or eliminated under the terms of the trust's governing instrument. As a result of changes to the statute in 2021, section 3339 of the 2024 Trust Law allows for the appointment of a designated representative to represent and bind minor, incompetent, unborn, or uncertain beneficiaries in any nonjudicial matter. It also specifies who should be notified of such meetings.

The new law allows for a broader definition of who can be represented in future trust proceedings and gives “extensive rights to know” to entirely new trust populations.

4. The effect of virtual representation. The 2024 Trust Act also amended Delaware's “virtual representation” statute to allow designated representatives to represent certain additional beneficiaries virtually when it was not possible to do so previously. The new law generally enables a beneficiary to represent and bind minor, incompetent, unborn or unborn beneficiaries whose interests are substantially identical to their own in a case or dispute — provided that the representative does not have a material conflict of interest with the represented beneficiary. Again, this allows entirely new classes of beneficiaries, who may be geographically widespread, to be included in representation from a single source.

5. Amendments to the Uniform Transfer Act on Death Security Registration. The Trusts Act 2024 adds and amends certain definitions, including clarifying that interests in limited liability companies, limited partnerships, statutory trusts and series thereof may be registered as a beneficiary with a TOD or payable on death. While there may be better or more convenient ways to transfer complex assets like an LLC, adding TOD provisions is simpler.

Broad appeal

A beneficiary welfare trust isn't just for the ultra-wealthy. It can serve any family that wants its heirs to receive more than just financial benefits from their estate. Even if a trust does not last indefinitely, future generations can benefit from financial literacy education, pre-inheritance training, and a better understanding of their family history and values. When you strip away all the legalizations, I think that's what the new legislation hopes to achieve.

Randy A. Fox, CFP, AEPis the founder ofTwo Hawks Family Office Services. He is a renowned wealth strategist, philanthropic estate planner, educator and speaker.