Jewish World Review July 6, 2004 /17 Tamuz, 5764
Jan L. Warner & Jan Collins
Who to trust with your trust?
Q: My husband and I are in the process of planning our estates and have decided to use living trusts; however, we have run into a snag choosing a trustee and personal representative. We have no children or close relatives, and have been sorely disappointed after meeting with representatives of the trust departments of several large banks suggested by our lawyer. They are asking for two percent of our assets per year and what we feel is carte blanche investment authority even though we have been dealing with a financial adviser for years and prefer to keep her involved. We have been married for 32 years, want to make sure each of us is taken care of, and, when the second of us dies, everything goes to charity. How do people without children go about handling these things?
A: Both trustees and personal representatives are fiduciaries. Trustees are appointed by individuals in their trust documents, while personal representatives are appointed by individuals in their wills. Both have general authorities expressed in the law of your state and the specific authorities included in your documents to meet your specific needs and wishes.
While you can't appoint yourself as personal representative of your own estate, you can certainly appoint yourself and/or your spouse as trustee of most kinds of trusts. In fact, generally speaking, you can choose any human being you wish to serve as trustee of most types of trusts. If you choose a person to act as trustee, you should make sure to pick one or more "standby" or "alternate" trustees who will act if your first chosen trustee is unable or unwilling to act or acts inappropriately.
However, should there not be a person you trust or should there be no one to serve as you have described, you may look to a corporation licensed to act as trustee in your state of residence. Generally speaking, banks, stockbrokerage companies and independent non-depository or depository trust companies are available in most states. If you choose a corporation to act as trustee, you may wish to include language that will allow the beneficiaries of the trust to choose another corporate trustee should certain performance guidelines not be met.
In your situation, you may want to appoint yourself and your wife as trustees and provide for a corporate trustee to take over should both you and your wife be unable to act. The corporate trustee's fee should not begin to run until it begins its duties, and, if it were us, we would make sure to specify in the trust the amount to be paid to the trustee rather than leaving this important question up in the air for potential future disputes.
Since you have expressed dissatisfaction with the trust departments of large banks, you may wish to consider those that are associated with smaller regional and community banks. While larger banks generally target the larger accounts, the smaller banks often provide all the services you require with a smaller minimum and for less fees.
With regard to investment decisions, we believe it is a mistake to allow the trustee to make the investment decisions, especially when the trustee can generate additional fees for other profit centers within its own institution by investing in proprietary products, trading through its own broker-dealer, or selling annuities and life insurance through its insurance arm.
Since we believe that there is a conflict of interest when the roles of trustee, investment adviser and insurance professional are mixed, we suggest that trust documents prohibit a trustee from self-dealing and making investment and insurance decisions that benefit another aspect of the same entity. In fact, instead of giving wide-open investment authority to any fiduciary, you can dictate exactly what investments you want and don't want made within your documents.
Trouble signs to watch out for: If a trust department suffers from staff turnover, stay away. If you are being pressured to move investments from your current adviser without good reason, stay away. If you are asked to give broad investment authority, stay away.
Which is better, an individual or a corporation? While you may be more comfortable with an individual, remember that individuals may not be able to be bonded, meaning that if your fiduciary runs off with your money, you will be out of luck. If, on the other hand, a corporate trustee's employee is dishonest, you may well have a better potential of recovery.
The planning process is one that deserves your full attention. Appointing fiduciaries is serious business and requires expenditures of time to make sure you are comfortable.
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JAN L. WARNER received his A.B. and J.D. degrees from the University of South Carolina and earned a Master of Legal Letters (L.L.M.) in Taxation from the Emory University School of Law in Atlanta, Georgia. He is a frequent lecturer at legal education and public information programs throughout the United States. His articles have been published in national and state legal publications. Jan Collins began co-authoring Flying SoloŽ in 1989. She has more than 27 years of experience as a journalist, writer, and editor. To comment or ask a question, please click here.
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