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| Trusts |
Ties that Bind
Michael Sisk
01/01/2004
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Getting the Better of Both
For those wavering between these two thorny alternatives, another option exists. "My advice is that the best choice is not to make the choice. Take the middle ground and name cotrustees," suggests Williams of Linscomb & Williams. "The individual plays the role of knowing the day-to-day needs of the beneficiaries, while the corporate trustee has the mechanism in place for accounting, investing and management." Such an arrangement conveniently allows the individual trustee to shift the onus onto the corporate entity when difficult or unpopular decisions present themselves.
Richard Moran, a senior advisor with Financial Network Investment Corp. in Rolling Hills Estates, Calif., considers the cotrustee an excellent strategy that endows a trust with both "a head and a heart." But before settling on a corporate trustee, Moran recommends we ask candidates six questions:
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What kind of trust and trust beneficiaries are they comfortable dealing with? Some trustees are uncomfortable with offshore trusts or trusts that involve minors.
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What will be the frequency and form of communication? Understanding these parameters from the start helps to establish reasonable expectations.
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Who do they consider major competitors? This can give us the opportunity to effectively compare how their costs and services differ from those operating in the same market space.
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Can they describe any actual or potential conflicts of interest? These might include, for example, a captive asset management relationship.
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What are the terms and limits of their liability insurance? These should be commensurate with the assets under management.
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Can they describe the process and cost of replacing them as trustees?
This last point is especially crucial, given the welcome developments in trust law over the past 10 years. Dismissing a corporate trustee used to be extremely difficult, leading many beneficiaries to complain that they were being ignored and taken for granted. Replacement now is significantly easier, encouraging trustees to be more responsive to clients’ wishes. However, while a trust should provide for the replacement of a corporate trustee, making that process too easy might prompt beneficiaries to go trustee shopping in search of the most pliable firm they can find.
Regardless of the kind or combination of trustee we choose, trust officials and financial advisors stress that we must carefully craft the language and details of our trusts. Imprecise wording may frustrate our wishes, no matter how carefully we select a trustee. Wilmington Trust’s Guernsey relates a cautionary tale: He recalls a trust that specified that a certain beneficiary could draw down $2 million the day after he was married. He married 14 times. "It should have said ‘the first time he married.’ One word can be negotiable." Illustration by Kevin Spaulding
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