Over the years, a number of our clients have expressed interest in ways to better protect their family. They may have taken steps to avoid probate and manage their investments during their lifetime as well as to minimize income, estate and gift taxes. However, many families are also concerned about making sure those inheritances last for the long term. In a world with high divorce rates and increasing numbers of lawsuits, asset protection and preservation is a critical concern for everyone. Many families would like to see their children and grandchildren's inheritance grow with a sound investment strategy and be protected from divorce, lawsuits and claims of creditors.
Along with customized trust and estate planning documents, Independent Trustees and Trust Protectors can enhance a family's asset protection strategy so that they will not lose their inheritance to predators and creditors.
Why an Independent Trustee?
Most people who have established a trust chose a family member as a successor Trustee to manage and distribute assets if they become disabled or pass away. A family member is an excellent choice for responsive management and understanding of family dynamics and circumstances, but most people know very little about the asset protection, investment, tax, accounting and fiduciary responsibilities of a Trustee.
A family member Trustee who is inexperienced with legal, tax and financial matters may inadvertently make mistakes or omissions that can create personal liability. They may even mismanage and deplete the funds for the beneficiaries of the trust. Family conflict can develop and legal fees, along with lower investment returns can destroy a hard earned family legacy.
Asset Protection
Better long term strategies may include a Trust that continues to manage your tax, legal, investment and asset protection planning objectives after you are gone, and as a result can provide significant advantages to your children and grandchildren. As the trust was created by you, and not a 'self settled' trust created by your beneficiaries for their own benefit, the assets in the trust are less vulnerable to your children or grandchildren's creditors (including lawsuit creditors and divorced spouses). However, in order to maximize asset protection of the Trust for children or grandchildren, an Independent Trustee should serve on the Trust.
The Independent Trustee will significantly enhance asset protection. If there is no Independent Trustee the assets of the trust could be exposed to bankruptcy, divorce, lawsuits and other creditors. If there is an Independent Trustee provided for under the terms of the Trust, asset protection is significantly improved. If you wish to leave a safe, secure inheritance, consider appointing an Independent Trustee to protect your family.
Investment Protection
One of the most overlooked duties of a Trustee is to manage all the Trust assets and investments to ensure that they remain productive and available for the beneficiaries as required by the terms of the Trust. Few Trusts have specific instructions for how a Trustee should manage and invest assets. Even if the Trust does include specific instructions, the Trustee must have the investment knowledge, or better yet, know how to find the investment expertise to manage Trust assets so that the Trustee can satisfy their fiduciary responsibilities.
While a Trustee does not have to personally oversee each aspect of the investment process, they are the overall manager of the process. It is a fiduciary who may be personally liable if the Trust's investments are too risky and funds are lost or if the Trust's investments are too conservative and the income stream provided by the Trust does not keep up with inflation. As long as there is a professional who plans and manages the investment so they meet the objectives of the Trust then the duty to manage and invest assets will be satisfied. For more information on an investment process that meets these criteria, please contact our office.
An independent Trustee with a solid understanding of the investment process is a resource to assist the family member Trustee in guiding the investment process as well as a way to make sure that the Trustee fiduciary duties are fulfilled while the investments are better managed.
What is a Trust Protector?
In addition to an independent Trustee, the Trust Protector is an important role to ensure that the Trust continues to meet its objectives as changes occur. A Trust Protector may be an individual or a group of individuals or corporations, including your Attorney, Accountant or a Trust Company. They are appointed in advance as a part of a Trust and they serve in their role when the Trust becomes irrevocable due to your death or disability. The Trust Protector is usually authorized to monitor and then fire or replace non-family member Trustees if they become ineffective and to amend a Trust that is otherwise irrevocable if legal changes, IRS opinions or scriveners' error have made it impossible for the Trustees' to fulfill your original wishes and intent. If a change is needed in an otherwise irrevocable Trust document, the Trust protector is in a position to make the change.
When you pass away, your Trust becomes Irrevocable and the provisions cannot be changed. However that does not mean there will be no changes in tax law or family circumstances. By naming a trust protector in your Revocable Living Trust you take steps to preserve your original intent, minimize the impact of taxes in particular the generation skipping transfer tax as assets pass from your children to your grandchildren and allow your family the flexibility it needs.
As you consider your estate planning alternatives, keep in mind the asset protection and planning advantages of making Independent Trustees and Trust Protectors a part of your family's team.
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