August , 2019

Who Do You Trust?

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Who Do You Trust?
Who should you choose as a Trustee?

When making recommendations for an Estate Plan I often find it appropriate and necessary to recommend the creation of one or more Trusts. In my four plus decades as a private practitioner of law one of the most important decisions in which I need to guide clients is in the selection of a trustee or, as often necessary and desirable, multiple special purpose trustees.

Few people have an understanding of the complex and multiple duties and responsibilities that a Trustee must perform, or on certain restrictions that are dictated by law. During our interview process the first words out of most every client is “my husband/wife should be the Trustee.”

At that point I ask something along the lines….”tell me about your husband’s/wife’s experience in allocating between principal and income or with the filing of fiduciary tax returns.” My clients eyes roll and awkward pauses of silence follow.

I’m describing the duties of administration of the Trust. Yes, a properly drafted Trust will empower the Trustee (or “General Trustee”) to employ the services of professionals such as attorneys or accountants in the administration of the Trust.

Sometimes the client will tell me outright that he/she doesn’t want a professional Trustee (often referred to as a “bank”) to serve as Trustee since that person may be skilled in the administration of trusts but “doesn’t know my family.” And they’re right! Professional Trustees rarely know the beneficiaries of the Trust. I recall a case not too many years ago brought against a Bank Trustee of a Special Needs Trust. This is a specific class of Trust designed to supplement the needs of a person qualified for SSI/Medicaid by way of disability. While the Trustee did know well the legal restrictions of the Special Needs Trust, nobody from the bank had ever – even once –visited or spoken to the beneficiary to learn what he needed or desired.

The direction in which I was guiding my client (and now you, the reader) is the ability to appoint a number of Special Purpose Trustees. Every Trust has a General Trustee. Most often this is the only named Trustee. It is important that the General Trustee be competent in Trust Administration. Being able to make the principal and income allocations, prepare the fiduciary tax returns, etc. Clients can also appoint a Distributions Trustee(s) who should be persons who know the beneficiaries and will look out that their needs are being addressed in making decisions of the timing and makeup of distributions of principal and income.

In my role as the attorney, I ask my clients to identify those people serving as their other professional advisers. Among those advisers might be a broker or financial planner. When there is such a relationship I encourage my clients to appoint (if the financial planner was willing and able to accept such appointment) the financial planner to be the Investment Trustee. In this way the client assures that the “investment style” of the Trust corpus will be in a manner with which the client was already happy and satisfied. Also it would not cause disruption of the investment plan of the client when transferring assets to the Trust. Trusted advisers such as a CPA might be a good choice as a Distributions trustee. In fact, I often recommend a committee for distributions.

LifeHealthpro, in the October 10, 2014 issue, stated: “With interest rates at record lows, trust-owned life insurance (TOLI) should be reviewed regularly to determine the risk of lapse. However, many trusts are administered by family members or others who lack the expertise to conduct policy reviews. Insurance agents have an opportunity to become a valuable member of the estate planning team by offering to review TOLI universal life policies and making recommendations for policies on the verge of lapse.”

I strongly advise my clients to consider a life insurance professional to serve as an Insurance Trustee, taking care when possible to assure that this person has industry qualifications such as the Chartered Life Underwriter (CLU®) designation.

The point which I hope to have communicated to you in this article is that, when your attorney guides you through the creation of a Trust or Trusts, it’s vital that you appoint a Trustee, or team of Trustees, who will address the concerns of not only you, the Grantor (person making) of the Trust, but of the beneficiaries of the Trust. A team of experts that may need to be assembled to assure that the administration is properly attended to, distributions to beneficiaries are timely and appropriate, the investment plan follows your wishes, and that the life insurance portfolio (if present) is carefully monitored to prevent lapse.

Who Do You Trust?
Who should you choose as a Trustee?

When making recommendations for an Estate Plan I often find it appropriate and necessary to recommend the creation of one or more Trusts. In my four plus decades as a private practitioner of law one of the most important decisions in which I need to guide clients is in the selection of a trustee or, as often necessary and desirable, multiple special purpose trustees.

Few people have an understanding of the complex and multiple duties and responsibilities that a Trustee must perform, or on certain restrictions that are dictated by law. During our interview process the first words out of most every client is “my husband/wife should be the Trustee.”

At that point I ask something along the lines….”tell me about your husband’s/wife’s experience in allocating between principal and income or with the filing of fiduciary tax returns.” My clients eyes roll and awkward pauses of silence follow.

I’m describing the duties of administration of the Trust. Yes, a properly drafted Trust will empower the Trustee (or “General Trustee”) to employ the services of professionals such as attorneys or accountants in the administration of the Trust.

Sometimes the client will tell me outright that he/she doesn’t want a professional Trustee (often referred to as a “bank”) to serve as Trustee since that person may be skilled in the administration of trusts but “doesn’t know my family.” And they’re right! Professional Trustees rarely know the beneficiaries of the Trust. I recall a case not too many years ago brought against a Bank Trustee of a Special Needs Trust. This is a specific class of Trust designed to supplement the needs of a person qualified for SSI/Medicaid by way of disability. While the Trustee did know well the legal restrictions of the Special Needs Trust, nobody from the bank had ever – even once –visited or spoken to the beneficiary to learn what he needed or desired.

The direction in which I was guiding my client (and now you, the reader) is the ability to appoint a number of Special Purpose Trustees. Every Trust has a General Trustee. Most often this is the only named Trustee. It is important that the General Trustee be competent in Trust Administration. Being able to make the principal and income allocations, prepare the fiduciary tax returns, etc. Clients can also appoint a Distributions Trustee(s) who should be persons who know the beneficiaries and will look out that their needs are being addressed in making decisions of the timing and makeup of distributions of principal and income.

In my role as the attorney, I ask my clients to identify those people serving as their other professional advisers. Among those advisers might be a broker or financial planner. When there is such a relationship I encourage my clients to appoint (if the financial planner was willing and able to accept such appointment) the financial planner to be the Investment Trustee. In this way the client assures that the “investment style” of the Trust corpus will be in a manner with which the client was already happy and satisfied. Also it would not cause disruption of the investment plan of the client when transferring assets to the Trust. Trusted advisers such as a CPA might be a good choice as a Distributions trustee. In fact, I often recommend a committee for distributions.

LifeHealthpro, in the October 10, 2014 issue, stated: “With interest rates at record lows, trust-owned life insurance (TOLI) should be reviewed regularly to determine the risk of lapse. However, many trusts are administered by family members or others who lack the expertise to conduct policy reviews. Insurance agents have an opportunity to become a valuable member of the estate planning team by offering to review TOLI universal life policies and making recommendations for policies on the verge of lapse.”

I strongly advise my clients to consider a life insurance professional to serve as an Insurance Trustee, taking care when possible to assure that this person has industry qualifications such as the Chartered Life Underwriter (CLU®) designation.

The point which I hope to have communicated to you in this article is that, when your attorney guides you through the creation of a Trust or Trusts, it’s vital that you appoint a Trustee, or team of Trustees, who will address the concerns of not only you, the Grantor (person making) of the Trust, but of the beneficiaries of the Trust. A team of experts that may need to be assembled to assure that the administration is properly attended to, distributions to beneficiaries are timely and appropriate, the investment plan follows your wishes, and that the life insurance portfolio (if present) is carefully monitored to prevent lapse.

© Alan Jay Ackerman, Esquire
Rabinovich Sokolov Law Group
1700 Market Street
Suite 1005
Philadelphia PA 19103
(215) 717-2200
alan@rslawgroup.com

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