TRUST & ESTATE PLANNING

Who Will Carry Out Your Wishes if Family’s Not the Answer?

07.06.2021 - Jennifer McCarthy, Trust Counsel

Choosing the right person to manage your affairs if you die or become incapacitated isn’t easy. It can be even more challenging if you’re not married and don’t have family members available to step in.

Your parents, children or siblings may either not be available, or not the right fit. Or maybe you feel like those who would be available don’t have the knowledge, discipline or time required to effectively oversee financial matters. The process of managing your affairs when you are no longer able to can be quite complicated. It’s therefore extremely important to select capable fiduciaries.

Typically, the decision-makers you need will include:

  • A successor trustee to administer revocable trusts you’re responsible for during your lifetime if you become incapacitated and distribute any remaining trust assets or continue administering the trust (depending on its terms) when you die.
  • An agent appointed as healthcare power of attorney to make healthcare decisions on your behalf in the event of incapacity.
  • An agent appointed as financial power of attorney to make financial decisions for you related to any assets held outside of your trusts (e.g., retirement accounts, brokerage accounts and personal bank accounts).
  • An executor to handle the settlement of your estate and the distribution of any assets held in your individual name upon your death. It can feel like an honor to be asked to fill one of these roles, but it also can be time consuming, complex, and fraught with liability.
Consider the qualities you need

So, what qualities should you look for when making these critical decisions? Here are a few essential qualities to consider:

  • Trustworthiness. You need to have complete confidence in your fiduciaries’ commitment to putting your interests, and those of your beneficiaries, ahead of their own.
  • Financial competency. Your successor trustees, executors and agent for financial decisions all must have a solid financial knowledge, money management skills and a strong understanding of their fiduciary duties.
  • Availability. You should name someone who has the time to dedicate to the work that needs to be done; from discussions with investment managers to responding to beneficiary requests and tracking down property interests.
  • Delegation. Look for someone who possesses the most important skill of every successful manager: an ability to identify and surround themselves with the right advisors (attorneys, CPAs, financial experts) to handle what needs to be done.

Think about everything that will be required to settle your estate after you die. Your executor or trustee is likely to need at least six to eighteen months to:

  • Identify, collect, value and sell all your assets
  • Pay all outstanding debts, liabilities and expenses
  • Ensure that all assets are managed prudently and in line with your estate’s distribution and liquidity requirements
  • Prepare and file all estate tax returns, income tax returns and court-mandated filings
  • Distribute assets according to the terms of your will and trust documents

These responsibilities don’t just take time, they require careful attention to detail and financial knowledge. Your trustee or executors may also need to make difficult asset distribution decisions, such as when tangible property needs to be divided among your beneficiaries. And keep in mind that any errors or omissions could subject your fiduciary to personal liability. You may think that by appointing someone it’s a sign of the faith and trust you have in them. But take time to do an honest evaluation and have an up-front conversation about your intentions. Make sure they’re not just able to perform the required duties—but also ready and willing to carry them out.

Understand the benefits a corporate trustee can provide

Traditionally, corporate trustees were often thought of as a last resort—when there weren’t family members or trusted individuals around to act, or conflicts required a neutral party. Nowadays, a corporate trustee, like Fiduciary Trust International, is often chosen even when competent individuals are available. This is because of the expertise, know-how, unbiased objectivity and professionalism a corporate trustee brings to the table from handling thousands of different trusts and estates. And they’re able to offer extensive in-house and third-party expertise to effectively manage even the most complex assets.

But it’s important to know choosing between an individual or corporate trustee isn’t an either/or decision. Instead, involving a corporate trustee gives you flexibility to create a structure that works best for your particular needs, for example:

  • An individual and a corporate trustee acting as co-trustees for your trust—where the corporate trustee can assume all investment management responsibility and the bulk of the day-to-day administration, but significant decisions, such as discretionary distributions, are shared.
  • A corporate trustee as agent for an individual trustee or executor—where all decision-making power lies with the individual but the individual hires the corporate trustee to do all or a portion of the work of the trust or estate administration.
  • A corporate trustee for specific assets—where the corporate trustee is responsible for managing particular assets like real estate or an art collection that needs to be sold, or the corporate trustee often may be charged to manage the long-term financial assets while an individual is responsible for the personal assets being used by the beneficiary.
  • A corporate trustee with beneficiaries able to act at a certain age—where the corporate trustee has all current responsibilities but the individual beneficiaries can elect to be a co-trustee when they reach a certain age.
  • A corporate trustee or executor with individuals as agents—where the corporate trustee assumes responsibility for your major assets upon your incapacity, but individuals are in charge of all personal decisions, including health care and day-to-day financial decisions.
In addition, for ongoing trusts, the use of a Delaware directed trust can provide even more flexibility in designing a governance structure that works for you.

While corporate trustees are often perceived as an expensive option, it’s important to remember that individuals are also entitled to compensation when acting as a fiduciary. Since individuals typically don’t bring the in-house expertise as corporate trustees, it’s often the individual who ends up being the more expensive option. In addition, at Fiduciary Trust, if we are already managing your investment, there’s typically no extra cost when we serve as trustee over those assets. And when we settle an estate or trust, our settlement fees typically will include any investment management we need to perform during that process.

Don’t forget to put the right foundation in place
To help simplify the settlement of your estate and avoid the probate process, you may want to explore establishing a revocable living trust in tandem with a durable power of attorney. The former can serve as the foundation of your estate plan—replacing a will as the primary document through which you convey your wishes for the transition and potentially the continued management of your wealth. While the latter (which is only operative during your lifetime) appoints the individual (or individuals) who will step in and act on your behalf if you should ever become incapacitated.

Naming the right fiduciaries to manage your trusts and administer your estate are two of the most important decisions you make to ensure your legacy goals are fulfilled. By knowing your range of options and choosing wisely, you can protect your beneficiaries, and help to preserve harmony through a difficult and stressful time.



This communication is intended solely to provide general information. The information and opinions stated may change without notice. The information and opinions do not represent a complete analysis of every material fact. Statements of fact have been obtained from sources deemed reliable, but no representation is made as to their completeness or accuracy. The opinions expressed are not intended as individual investment, tax or estate planning advice or as a recommendation of any particular security, strategy or investment product. Please consult your personal advisor to determine whether this information may be appropriate for you. This information is provided solely for insight into our general management philosophy and process. Historical performance does not guarantee future results and results may differ over future time periods.

IRS Circular 230 Notice: Pursuant to relevant U.S. Treasury regulations, we inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. You should seek advice based on your particular circumstances from your tax advisor.

 

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