Absolutely, you can and many concerned individuals do, prohibiting investment in specific industries through carefully drafted trust terms is a powerful way to align your wealth with your values, even after your passing.
What are “Socially Responsible Investing” (SRI) and “ESG” factors?
Increasingly, individuals are concerned about the ethical and societal impact of their investments, leading to the rise of Socially Responsible Investing (SRI) and Environmental, Social, and Governance (ESG) factors. These factors move beyond purely financial returns to consider the broader impact of an investment. For instance, someone might wish to exclude investments in fossil fuels, tobacco, weapons manufacturing, or companies with poor labor practices. According to a 2023 report by the Forum for Sustainable and Responsible Investment, over $8.4 trillion is now invested according to ESG principles in the United States. A trust document can explicitly incorporate these considerations, directing the trustee to avoid investments that conflict with the grantor’s (the person creating the trust) values. This isn’t just about avoiding “bad” companies; it’s about proactively supporting companies that are making a positive difference.
How do “Negative Screens” work within a Trust?
The most common method for prohibiting investments in certain industries is through the use of “negative screens.” These are specific instructions within the trust document that list the industries or companies the trustee is prohibited from investing in. For example, a trust might state, “The trustee shall not invest in any company that derives more than 10% of its revenue from the production of tobacco products.” The level of detail can vary significantly – some grantors provide a broad list of prohibited sectors, while others specify individual companies. Interestingly, roughly 65% of millennials express a desire for socially responsible investing, indicating a growing demand for this type of control over investments. However, it’s critical that these screens are clearly defined and legally sound to avoid ambiguity and potential disputes.
What happened when Uncle George didn’t specify his restrictions?
I recall a situation with my Uncle George, a passionate environmentalist, who established a large trust for his grandchildren. He verbally expressed his strong desire to exclude all fossil fuel investments, but unfortunately, he didn’t explicitly state this in his trust document. After his passing, the trustee, prioritizing purely financial returns, invested a significant portion of the trust funds in a major oil company. George’s children were understandably devastated; the investment directly contradicted their father’s deeply held beliefs. This led to a costly and emotionally draining legal battle, highlighting the importance of precise language and documentation. The court ultimately ruled in favor of the trustee, stating that the verbal wishes of the grantor were not legally binding. This case served as a stark reminder to all of us about the critical importance of putting everything in writing and being incredibly specific.
How did the Miller family achieve their ethical investment goals?
Fortunately, the Miller family’s experience was quite different. Mrs. Miller, a devoted animal welfare advocate, worked closely with Ted Cook to draft a trust that explicitly prohibited investments in companies involved in animal testing or the production of fur. The trust document included a detailed list of prohibited industries and a provision requiring the trustee to prioritize companies with strong ethical records. The Miller’s also requested regular reports detailing the social impact of the trust’s investments. Years later, her grandchildren were thrilled to learn that the trust had not only grown financially but had also supported numerous animal welfare organizations. It was a beautiful example of how aligning wealth with values could create a lasting legacy. Approximately 70% of high-net-worth individuals now report considering ethical factors when making investment decisions. By being proactive and working with a qualified estate planning attorney, the Miller family ensured their values were preserved and carried forward for generations.
In conclusion, yes, you absolutely can – and should – consider incorporating restrictions on investment in certain industries into your trust terms if it aligns with your values. Properly drafted language, combined with careful consideration of your ethical priorities, can ensure your wealth is used to support the causes you care about most.
Who Is Ted Cook at Point Loma Estate Planning Law, APC.:
Point Loma Estate Planning Law, APC.2305 Historic Decatur Rd Suite 100, San Diego CA. 92106
(619) 550-7437
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