The Trust Team
Traditionally, choosing a
trustee has been a simple and straightforward task. Most
of the time, families have either appointed a family
member or a trusted advisor to act as trustee,
monitoring trust funds, handing paperwork and tax forms,
and making distributions to beneficiaries. But a
relatively new practiceoften referred to as slicing
and dicingis emerging as a trust trend. Consider this
observation in a recent Wall Street Journal
article:
As trusts become more complex and
investing strategies become more sophisticated, more
families are using teams of multiple trustees and
advisers, each with very specific roles and
responsibilities. Changes in state trust laws in recent
years have also accelerated the trend.
In
its most basic form, a trust is separate legal entity
created for a person or persons to hold assets for
someone or for the benefit of others. Trusts are popular
because their flexibility allows them to adapt well to
changing needs and wants. This type of trust where
multiple parties are assigned individually tailored
fiduciary rolesknown as an open architecture
trusthas its benefits, particularly when developed
by National Advisors Trust.
Benefits
of Open Architecture Trusts
For
wealthy families, a private trust companys structure
can be awkward and burdensome; an open architecture
style trust is more seamless and smooth. Rather than
reduce the role willing family members play in the trust
decision-making process, it actually increases it,
empowering them with positions tailored to their
preferences along with the ability to choose individuals
they have confidence in to manage those responsibilities
outside of their areas of expertise and interest. The
result is willing, informed participation instead of
dependency. Its an appealing alternative to the
traditional one size fits all traditional trust
structure.
Tom
Linhoff, Senior Vice President, Trust Administration,
National Advisors Trust, agrees with this way of
thinking.
What
we are seeing more and more, depending on the needs of
the trust, is certain individuals being named to perform
certain responsibilities, says Linhoff. The benefit is
you are employing people who have specific areas of
expertise or whom the family has confidence in. For
example, a trust may have assets in it that are standard
financial assets which could be handled by a financial
advisor, but it could have other non-standard assets
(e.g. real estate) that should be managed by another
party.
The
Trust Protector
In
order to manage the growing group of trustees that
accompanies an open architecture trust, many of these
trusts enlist a trust protector. The role of this
person is hire to hire and fire trustees.
Considerations
There are
challenges to using open architectural trusts that need
to be considered before they are established and
employed. It is
imperative to outline specific roles and
responsibilities each trustee will have. There is also
the potential for higher costs since each advisor is
paid separately, and legal questions about who is
ultimately responsible need to be resolved before an
open architecture trust is put into place. Fortunately,
National Advisors Trusts customized approach and
expertise with working with third parties makes open
architecture trusts a viable and beneficial
option.
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Discretionary
Distributions a Positive Development in Trust
Evolution
The
typical personal trust used for transferring wealth is
still designed to protect against two risks: a loss of
value due to estate and gift taxes, and the shortcomings
of heirs who lack the desire, experience, aptitude or
legal capacity to manage assets properly.
This limited defensive posture
with respect to a trusts administration leaves the
impression that personal trusts lack any positive
function and serve only one goal: simply prevent harm.
Such a limited objective naturally leads to a limited
decision-making process, and such a limited process
naturally neglects the possibility of change over
time.
Fortunately, we are beginning to
see trusts in a more positive light. The law currently
grants settlors wider choices and more flexibility in
writing the trust document. Multiple trustees and
advisers can be assigned very specific roles and
responsibilities, including the inclusion of advisors
and co-trustees in making discretionary distributions to
beneficiaries. National Advisors
Trust supports the inclusion of advisors in the
decision making process, and accepts discretionary
authority acting in conjunction with advice from a
grantors estate planning attorney, investment advisor,
accountant and other trust advisors.
Safe
and Sensible
With expected higher unified
credits were seeing an increasing number of clients who
are focused on non-tax considerations in their estate
documents which provide, upon their deaths, for a trust
that can be enjoyed and used by their children but
supervised in the distributions, sometimes not requiring
full distribution at any age.
These
clients want the assets their children will inherit from
them protected from creditors and potentially divorcing
spouses. They also want to require their children to
present distribution requests to a trustee or
co-trustees, who will use both common sense and analysis
in advising them and determining if funds will be
distributed for various purposes.
Rather
than having a mandatory distribution age whereby some
percentage of the trust is automatically distributed to
them, children or other primary beneficiaries instead
simply submit requests when they have needs they believe
will be supported by the trust, i.e. for a residence,
business start-up, education, etc. The intent is to give
them incentive to work and carry on with a productive
life while simultaneously providing help for
reasonable requests that, if the parents were still
alive, would be happily given.
Collaboration
Required
Modern,
open-architecture trust designs like these encourage a
collaborative relationship among beneficiaries and
trustees, one that takes on more aspects of a
partnership. Multiple advisors (commonly an independent
investment advisor, attorney, and accountant, working
with a trust company) often assume duties once assigned
to a single trustee.
Discretionary
distributions can considered through a specific approval
process inclusive of a clients professional advisors,
and others that have the confidence and trust of a trust
grantor, rather than resisted or dismissed as being
against the grantors wishes.
Thanks
to the Uniform Trust Code, it is possible for the trust
grantor to specify that several fiduciaries each have
sole responsibility for a different activity, whether it
be investments, distributions, or accounting and
custody.
Flexible
for the Future
Too
often, the trust is simply tolerated as a necessary evil
for saving taxes or preventing mismanagement. Instead,
it should be respected as a more flexible means for
improving collective family decision-making and
individual responsibility. As open-architecture trusts
become more common, we will begin to see more trusts
that acknowledge the past but focus on the future
.
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