Navigating generational change in trusts: a discussion with Dr Ronit Lami

We were delighted that Dr Lami could join our recent panel discussion on trusts and the challenges of generational change. Dr Ronit Lami MSc, PhD. is a wealth psychologist licensed in the US and UK, who assists wealthy individuals and families with the non-financial aspects of their wealth and their lives.

The panel was chaired by Sarah Von Schmidt, a partner in our private client team with contributions from Andrew Dickson, senior counsel in our private client team and Joseph de Lacey, a senior associate in our contentious trusts and estates team. They were able to draw on their work to highlight matters in which the issues identified by Dr Lami came into play, and provided practical tips for dealing with these issues, including:

• Educating beneficiaries about how trusts work, and the duties and responsibilities of trustees,
• Communicating effectively with beneficiaries, and engaging with them proactively to minimise the risk of disputes, and
• Identifying members of the trustee team (or the legal team) who can ‘cut through’ and speak to the younger beneficiaries in terms which they understand.

With Dr Lami’s kind permission, we share some of her insights in the discussion.

The world has changed rapidly in recent years. What impact have these changes had on younger generations of beneficiaries?

Dr Lami: “They had access to information and opportunities that simply were not there before. They are defined by their access to technology. This leads to issues of:

• Getting bored easily,
• More is not satisfying or enough,
• A search for instant gratification, and
• Short attention spans.

These have led to increases in:

• Attention Deficit Disorder,
• Depression and Anxiety, and
• Addictions and substance abuse.

In short, these generations can be more demanding, expressive, and eager for instant gratification.  They can also have more of a sense of entitlement.”

What issues do younger beneficiaries of trusts struggle with?

Dr Lami: “There are a variety of aspects beneficiaries can suffer from. They can be anything from being ambivalent about their wealth, feeling that they are not deserving of it or thinking that they are entitled to have it and do what they want with it. 

There are those who don’t really know where they stand in relation to the wealth that is set aside for them, which can cause psychological and emotional issues. 

Fears of not measuring up, and a feeling of inadequacy are not uncommon, as well as issues of shame and guilt regarding their wealth, which conflict with feelings of pride at what has been amassed by the family. 

Equally, I meet many beneficiaries who do not feel heard or understood, whether by their parents or their trustees.

Quite often beneficiaries become victims and thus disempowered in relation to their wealth. There is a psychological similarity between a beneficiary receiving support from a trust, and a person who receives social security cheques. Each of those persons can feel reliant on others, which can undermine their self-esteem. 

All these things are issues that at their core relate to self-esteem, confidence, and self-worth, and in my work with beneficiaries quite often the aim is developing these aspects of the self.”

How can the relationship between trustee and beneficiary be improved?

Dr Lami: “If we look at the relationship between a trustee and a beneficiary as an arranged relationship, just like an arranged marriage, it will give us some perspective on how to deal with it.

In general, for any relationship to work, it is vital that you understand your partner, as such an understanding will reduce tensions, build trust, and improve communication. Vital to this is what I call ‘attentive listening’, which is an integral part of communication.

My advice is to encourage trustees and parents to communicate with and educate their beneficiaries. Ideally, they would put in place mechanisms to increase their beneficiaries’ financial education. Try to make beneficiaries feel that the trust is empowering them. I try to encourage frequent meetings with beneficiaries and trustees, particularly in an informal setting. If the beneficiaries want to communicate via WhatsApp, rather than in an annual meeting, embrace it. Make them feel heard”.

What do you think trustees can and should do to help lower tensions and better deal with emotional or angry beneficiaries?

Dr Lami: “Trustees should try to be the ‘responsible adult’. They should employ strategies for effective listening, to make beneficiaries feel heard and understood.  They also need to understand that people react in different ways to the same situation, let alone, to different situations. Therefore, they should try to learn about their beneficiaries, and explore what motivates them and what they are afraid of. 

It can be helpful to delay responding and not react instinctively, especially to criticism. Try to put yourself in the beneficiaries’ shoes and always ask yourself: “why are they acting in this way?” 

Another strategy is to not to wear your ‘professional suit’, it is too intimidating for many beneficiaries.  Be genuine, interact, and communicate.  Beneficiaries often tell me that they are looking for real connections with people who care.”

What might be useful for trustees to understand from a psychological standpoint so that they can deal with these sorts of possible problems and concerns before conflict arises, while also complying with their trustee duties?

Dr Lami: “I would recommend building up the relationship and sense of trust from a young age: start at 13 or so. Avoid or reduce conflict by developing better communication skills. Invest in coaching if you think that’s helpful. See yourself as a coach or mentor, not an adversary. Make the beneficiaries understand that you have to protect their best interests and the best interests of the beneficiaries as a whole. Do not be judgmental, dismissive, defensive. Be aware of how you are perceived and show you have their best interests at heart”.

If you require further information about anything covered in this briefing, please contact your usual contact at the firm on +44 (0)20 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, April 2023