At Fairview Capital, we do more than manage our client’s assets, we help them to achieve their financial and life goals. We have a highly experienced team of professionals that provide individualized and tailored financial services to meet the needs of each client. Our comprehensive wealth management advice and service also includes estate planning, where we work alongside your estate attorney to ensure the protection and distribution of your wealth according to your wishes.
A family trust is a component of estate planning and one way for high net worth families to pass on assets to beneficiaries. Family trusts possess advantages that other primary methods of passing on assets to beneficiaries, such as a Last Will and Testament, do not. Trusts may help ensure that family assets are managed prudently, so that they can benefit all your beneficiaries as you wish, through the generations.
They can also protect your assets against events such as a future divorce or issues with creditors. The trust as an entity owns the assets, so they aren’t marital property to be divided in the case of divorce, and they don’t represent assets that creditors can try to access.
However, setting up a trust can be complicated. In a trust, your beneficiaries are not bequeathed assets outright, as they are in a Will. Instead, you, as the trustor, give rights to individuals or entities known as trustees to manage and oversee the assets on behalf of the beneficiaries. The trustees may also hold title to the assets. The trustees’ duties may include investing and managing the trust’s portfolio, protecting the trust from risk, and managing disbursements to the beneficiaries.
Given these responsibilities, choosing the trustee(s) is clearly important in setting up a trust. Below are five tips that may help you in the decision-making process:
1. Evaluate trustees for expertise and prudence
Trustees can either be individuals or corporate fiduciaries, which would often be financial institutions like banks or trust companies. While no specific experience is needed to be a trustee, it can be prudent to choose one who either has the needed expertise (in investment management or legal affairs, for example) or is aware of when specialized expertise is needed.
A trustee should keep the best financial interests of all beneficiaries in mind. If they are individuals, they must be fair and have a fiduciary mindset. If they are corporate trustees, they must be fiduciaries. It is also possible to name a beneficiary as a trustee.
2. Evaluate the need for expertise
The need for expertise to some extent varies with the key reasons for establishing the trust. If your goal is to maximize the investment performance of your assets, it may be wise to choose a trustee familiar with investment management. If it’s to legally safeguard the assets, it may be wise to choose a trustee familiar with estate law. If your trust’s goals will be minimizing taxes, you may want to look for trustees with tax and accounting expertise.
3. Consider personal qualities and characteristics
If you’re choosing individuals, consider their personal qualities and characteristics dispassionately. Think about how your choice for trustee manages their own financial and family affairs, for example. Are they attentive to financial matters and comfortable with them? Are they attentive to their responsibilities and discharge those responsibilities consistently? If they are also beneficiaries of the trust, will they be able to make objective decisions that put the benefits of all beneficiaries first?
Consider their age and stage of life, as well. If you choose someone who is approximately in your age cohort, it is possible they might pass away within a few years of you. That would either require a successor trustee or a search for a new trustee. Similarly, if you choose a spouse, they may want to marry again. If they do, they may want to include the spouse and even a spouse’s family in the disposition of their assets. Would that be beneficial for the trust and in line with your wishes?
Consider their relationships with other family members. You may want to choose someone who gets along with all or most all family members and that can communicate well with them. A trustee should not be contentious or favor one segment of beneficiaries over another.
Finally, of course, your chosen trustee should agree with your reasons for establishing the trust and be in concert with the way you want it managed as well as the best interests of the beneficiaries.
4. Consider co-trustees as an option
Trusts can have co-trustees. In some cases, co-trustees can be a positive solution. They can be the means of blending family members and corporate fiduciaries with specific expertise. A trust with co-trustees is also a way to make sure that one family member isn’t given too much responsibility and authority in the trust. Co-trustees can include family members and neutral third parties who have been tasked with the protection of the assets.
You should be aware of potential downsides to co-trustees, however. They can conceivably lead to friction if all parties do not agree or contention about certain issues becomes a factor. In addition, co-trustees could increase the administrative burden on the trust.
5. Leave room to re-evaluate the trust periodically
While trusts are designed to maximize the stability of your assets and the protection of your family, that doesn’t mean that trusts and trustees are unchangeable. Circumstances change. A spouse named as trustee might marry again and be more concerned with a new spouse and family than with their former spouse’s trust.
Reasons for establishing a trust change. A trust established to fund your children’s educations may no longer be necessary once they have embarked upon careers.
Laws governing trusts and related matters change. If one of your goals was minimizing taxes by transferring assets to avoid estate taxes, you may no longer need the trust if estate tax laws change.
As a result, it’s prudent to revisit both the trust and the trustees periodically.
Fairview Capital Can Help with Estate Planning
Estate planning is an essential part of financial planning. Your choice of trusts, trustees, or wills should be based on your long-term goals and your circumstances, such as asset preservation, intergenerational wealth transfer, and tax minimization.
At Fairview Capital, our highly experienced team can advise you on complex financial situations, acting as the coordinator with your estate attorney, accountant, trustees, philanthropic consultants, and other trusted advisors. We want to ensure information is communicated seamlessly and executed effectively according to your wishes.
For more information about how Fairview Capital can help with your estate planning needs, schedule a call today.
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