Written by: Deborah Cartisser
A trust is created to help pass on assets, control finances and ensure that wishes are carried out. This can be a very useful tool in your estate plan. Trusts have many uses and can protect both assets and trust beneficiaries from different types of risk. One of the most important aspects to consider when creating a trust is who will be responsible for managing it? All trusts require some level of oversight, and many factors determine the level of complexity involved. Often hiring a professional can be the best option for your family.
A trust is a legal relationship created and funded with assets. The donor creates the trust with help from an attorney and funds it with some or all of their assets. The beneficiary is the person who will receive the assets. The trustee is required to manage and distribute the assets in accordance with the stipulations in the trust document. The professional trustee is sometimes known as a fiduciary, who has an ethical and legal relationship of trust. This can be a person, or an institution hired to manage a trust. Under what circumstances should you consider hiring a professional?
Family dynamics between spouses, step-parents, siblings, in-laws and second families can all come into play when property is at stake as emotions can cloud issues. Family members who agreed to uphold a donor’s wishes may change perspectives and begin to operate in self-serving ways. A professional trustee can be the neutral party required to operate in a fair, objective manner. The trustee is liable to the beneficiaries for proper management of the trust. The professional trustee may be able to sidestep legal battles by preventing warring family members from bringing the trust into their battles.
When a trust holds complex assets, such as rental properties, rights to intellectual property, or marketable assets of significant value, there may not be family members with the experience to manage the assets along with the tax and legal implications. Finding a trustee with experience managing the particular type of assets the trust holds can be beneficial and prevent errors due to inexperience.
When a minor is a trust beneficiary, the trustee has to approve expenses and manage the trust in the best interest of the minor. They are required to make decisions focused on the interest of the child, not necessarily the guardian. A special needs trust may be set up for a disabled person, not capable of managing their finances on their own. In cases where you are setting up a trust for either of these beneficiaries, you may wish to have separate appointments for the guardian and the trustee. Having the same person serve in both roles may make objectivity very difficult.
Managing a trust requires time and dedication. Many family members juggling careers, raising families or caring for elderly parents may not have the ability to take on the role of trustee. Managing a trust requires attentiveness to market conditions, tax and legal landscapes and the welfare of the beneficiary. A professional trustee may be optimal as they focus on trusts as part of their occupation.
It’s not unusual to have a person who is of age and competent but may not have the best history of handling money. There can be many reasons for this, but the donor may simply decide that his/her concerns of the beneficiary mismanaging the inheritance creates the need for the skills of a professional trustee. The professional trustee may be required to set limits and say no to requests for distributions. This can be an unpopular role that other family members prefer to avoid.
A trust that is meant to provide for more than one generation is a good place for a professional trustee. In this situation the trustee must take into account the sometimes competing needs of primary and secondary beneficiaries. Decisions made that favor one class of beneficiaries over another can subject the trustee to a lawsuit. An experienced trustee is more likely to avoid poor decisions.
When you put insurance into a life insurance trust, you are likely doing so to enable a tax-free transfer to your beneficiaries. If you own the policy and are also the insured, the assets will be pulled into your estate and taxed. A way to avoid this is to put the policy into an irrevocable life insurance trust. The professional trustee is a good choice for this type of trust because it avoids the conflict of having the beneficiary serve as trustee.
A professional trustee is likely to have a succession plan within their company so you don’t have to worry that the trust will outlast your trustee. Many trusts will last decades and appointing a family member as sole trustee can present problems when they are too old to serve, or they die without naming a successor trustee. The professional trustee can be the perfect solution to this issue.
Creating language in the trust addressing circumstances under which the professional trustee can be replaced is important. Another option is to have a trusted family member serve with the professional as co-trustees. After creating your trust, consider writing a memorandum to the trustee, which conveys your values and the purpose of the trust. This isn’t a legal document but rather helpful guidance for the trustee who will likely be administering the trust after your death. Twelve Points Fiduciary Services offers professional trustee services in the form of a corporate trustee. If you have questions about your estate plan and how a trust may serve your family, contact us.
PLEASE SEE IMPORTANT DISCLOSURE INFORMATION at www.twelvepointswealth.com/disclosure