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Maturity. The cycle of the Living Trust is now coming full circle to maturity. In estate planning lingo, this means
that grantors who executed Living Trusts years ago are now dying, leaving those trust documents to regulate
and govern the family’s financial affairs.
What many have considered to be "boiler plate" is now gospel. Our current client experiences are
demonstrating some of the problems that are arising. The point of this newsletter is that many trusts are
either out of date or possibly not skillfully drafted to take into account common problems that can arise after a
grantor’s death.
Who is the Trustee? Often the named Trustee is the surviving spouse or another family member. If the
surviving spouse is the continuing Trustee in a Joint Trust, for example, with full power to amend or revoke the
Trust, the Trust assets remain under the survivor’s complete control and there really is not an issue.
However, if a widow is the Trustee of her husband’s Trust, there are many issues that arise if the widow
remarries or if there are stepchildren. While flexibility is usually a good hallmark, the remainder beneficiaries
usually deserve some guidelines to measure the Trustee’s actions, especially as they relate to investments
and distributions of principal. For obvious reasons, we typically do not recommend that a surviving spouse be
a Co-Trustee with a stepchild. Nor for the survivor’s benefit would we recommend that the sole Trustee be a
stepchild.
Another common situation is a Trust for children and grandchildren which may last for generations. We are
currently dealing with trusts drafted in the 50's and 60's, to give you an idea of the duration of some of our
family plans. Is it really fair and wise to trust the management of a family’s wealth to an individual over that
span of years? How many individuals have the experience and the resources to effectively manage and
account for substantial wealth over a period of many years?
All of these considerations lead to serious discussions about using a Corporate Trustee. When faced with
some of the questions just raised, we are finding more and more clients opting to use a Corporate Trustee,
many times as a co-trustee, to insure continuity and professional experience. Corporate Trustees (for the
most part read "banks") have taken some bad raps. In the 80's and 90's, many people thought their
investment policies were too conservative. In some cases we have heard charges of self-interest, rather than
beneficiary interest. However, as trusts mature and more people experience administering trusts and being
trust beneficiaries, Corporate Trustees are now getting much more consideration by many clients. They have
the experience and expertise to serve beneficiaries over a long period of time.
Who Manages the Money? Whether the trustee is an individual or Corporate Trustee, it is important to have
flexible language in the trust concerning investment management. If outside investment advisors are to be
used, there should be careful consideration given to how the advisors are chosen and how they might be
removed. Is this strictly a trustee decision, or do the beneficiaries have any input? Can it be a private advisor,
or does it have to be an institution with minimum capital requirements? The proliferation of private managers,
usually fee based, make Corporate Trustees much more flexible in combining private money managers with
trust affairs, separating investment management from the administrative duties.
Sometimes a particular advisor or advisory firm is mentioned. What are the circumstances for changing
investment advisors? Should beneficiaries have an input on the selection of the investment advisors? If
investment advisory services are tied to a particular individual, perhaps some guidance should be given to
the trustee in the event that individual dies or resigns.
Some Corporate Trustees have become very flexible in the use of private money managers and trust
management. Some have a select list to choose from, and some permit more flexibility. In all cases, a
Corporate Trustee is concerned about liability, especially when responsibility is delegated to outside
managers. While many Corporate Trustees want the authority to use their in house financial products, we are
finding more clients who are reluctant to grant that authority, feeling that the Corporate Trustee would have a
conflict of interest in that regard.
How Does the Trustee Get Changed? Careful thought needs to be given to removal or resignation of trustees.
We are seeing instances of individual successor trustees becoming incapacitated by age or illness. We see
family disagreements coming to forefront when one individual has the power and authority of a trustee, and
where there are antagonisms with beneficiaries. Personal animosities can make life difficult for both trustees
and beneficiaries who don’t get along.
What Does the Trust Say About Removing a Corporate Trustee or Appointing a New Corporate Trustee? Who
Has the Authority To Do That and Under What Circumstances? All of these provisions that were formerly
"standard" are now bearing more scrutiny and discussion with clients.
Who Gets Information and When? Information about the trust administration, investments and
disbursements is critical to beneficiaries and an important part of a trustee’s job. Normally, with a Living
Trust, so long as Settlor is running things, nobody gets information except the Settlor. What happens in the
event of incapacity? Is information limited to a spouse, or do children get information at that point?
Sometimes clients do not want children to have information until both spouse’s are deceased. If there are
stepchildren, this may not be advisable. Michigan law provides that a trustee provide information upon
request, and a court can order a trustee to render accounts, even if the trust says that accounts are not
necessary. However, generally family members don’t want to take each other to court in order to get
information. Trust language which expands on these points can be helpful in avoiding outright conflicts and
litigation.
Conclusion. This is just a partial list of the problems that are arising more frequently in trust administration
and drafting. The old adage is "experience is the best teacher." We in the trust business are getting a lot of
lessons. Corporate Trustees are becoming more flexible, better capitalized and national in their operation
(which in itself is creating new problems with respect to a proper forum to resolve disputes). All your clients’
trusts need review with respect to the points raised in this newsletter. Drafting can’t cover every contingency,
but the objective of flexibility and guidance for beneficiaries and trustees is something that all trust makers
should give serious thought.
If you have clients whose trusts need review and updating, with some of these considerations in mind, call
Jim Modrall at (231) 941-9660 or any of the other attorneys listed below. Incidentally, Larry Kustra is working
into this area of the practice, from a career principally as a bank attorney, which will be a valuable backstop for
me.
Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Edgar Roy, III, Matthew D. Vermetten, Thomas A.
Pezzetti, Jr., John. M. Grogan, Vicki P. Kundinger, Susan Jill Rice, Gary D. Popovits, Lawrence K. Kustra, H.
Douglas Shepherd, Jonathan J. Siebers and Karin Church at (231) 941-9660
©BRANDT, FISHER, ALWARD & ROY, P.C.
This newsletter is provided for informational purposes and should not be acted upon without professional
advice.
that grantors who executed Living Trusts years ago are now dying, leaving those trust documents to regulate
and govern the family’s financial affairs.
What many have considered to be "boiler plate" is now gospel. Our current client experiences are
demonstrating some of the problems that are arising. The point of this newsletter is that many trusts are
either out of date or possibly not skillfully drafted to take into account common problems that can arise after a
grantor’s death.
Who is the Trustee? Often the named Trustee is the surviving spouse or another family member. If the
surviving spouse is the continuing Trustee in a Joint Trust, for example, with full power to amend or revoke the
Trust, the Trust assets remain under the survivor’s complete control and there really is not an issue.
However, if a widow is the Trustee of her husband’s Trust, there are many issues that arise if the widow
remarries or if there are stepchildren. While flexibility is usually a good hallmark, the remainder beneficiaries
usually deserve some guidelines to measure the Trustee’s actions, especially as they relate to investments
and distributions of principal. For obvious reasons, we typically do not recommend that a surviving spouse be
a Co-Trustee with a stepchild. Nor for the survivor’s benefit would we recommend that the sole Trustee be a
stepchild.
Another common situation is a Trust for children and grandchildren which may last for generations. We are
currently dealing with trusts drafted in the 50's and 60's, to give you an idea of the duration of some of our
family plans. Is it really fair and wise to trust the management of a family’s wealth to an individual over that
span of years? How many individuals have the experience and the resources to effectively manage and
account for substantial wealth over a period of many years?
All of these considerations lead to serious discussions about using a Corporate Trustee. When faced with
some of the questions just raised, we are finding more and more clients opting to use a Corporate Trustee,
many times as a co-trustee, to insure continuity and professional experience. Corporate Trustees (for the
most part read "banks") have taken some bad raps. In the 80's and 90's, many people thought their
investment policies were too conservative. In some cases we have heard charges of self-interest, rather than
beneficiary interest. However, as trusts mature and more people experience administering trusts and being
trust beneficiaries, Corporate Trustees are now getting much more consideration by many clients. They have
the experience and expertise to serve beneficiaries over a long period of time.
Who Manages the Money? Whether the trustee is an individual or Corporate Trustee, it is important to have
flexible language in the trust concerning investment management. If outside investment advisors are to be
used, there should be careful consideration given to how the advisors are chosen and how they might be
removed. Is this strictly a trustee decision, or do the beneficiaries have any input? Can it be a private advisor,
or does it have to be an institution with minimum capital requirements? The proliferation of private managers,
usually fee based, make Corporate Trustees much more flexible in combining private money managers with
trust affairs, separating investment management from the administrative duties.
Sometimes a particular advisor or advisory firm is mentioned. What are the circumstances for changing
investment advisors? Should beneficiaries have an input on the selection of the investment advisors? If
investment advisory services are tied to a particular individual, perhaps some guidance should be given to
the trustee in the event that individual dies or resigns.
Some Corporate Trustees have become very flexible in the use of private money managers and trust
management. Some have a select list to choose from, and some permit more flexibility. In all cases, a
Corporate Trustee is concerned about liability, especially when responsibility is delegated to outside
managers. While many Corporate Trustees want the authority to use their in house financial products, we are
finding more clients who are reluctant to grant that authority, feeling that the Corporate Trustee would have a
conflict of interest in that regard.
How Does the Trustee Get Changed? Careful thought needs to be given to removal or resignation of trustees.
We are seeing instances of individual successor trustees becoming incapacitated by age or illness. We see
family disagreements coming to forefront when one individual has the power and authority of a trustee, and
where there are antagonisms with beneficiaries. Personal animosities can make life difficult for both trustees
and beneficiaries who don’t get along.
What Does the Trust Say About Removing a Corporate Trustee or Appointing a New Corporate Trustee? Who
Has the Authority To Do That and Under What Circumstances? All of these provisions that were formerly
"standard" are now bearing more scrutiny and discussion with clients.
Who Gets Information and When? Information about the trust administration, investments and
disbursements is critical to beneficiaries and an important part of a trustee’s job. Normally, with a Living
Trust, so long as Settlor is running things, nobody gets information except the Settlor. What happens in the
event of incapacity? Is information limited to a spouse, or do children get information at that point?
Sometimes clients do not want children to have information until both spouse’s are deceased. If there are
stepchildren, this may not be advisable. Michigan law provides that a trustee provide information upon
request, and a court can order a trustee to render accounts, even if the trust says that accounts are not
necessary. However, generally family members don’t want to take each other to court in order to get
information. Trust language which expands on these points can be helpful in avoiding outright conflicts and
litigation.
Conclusion. This is just a partial list of the problems that are arising more frequently in trust administration
and drafting. The old adage is "experience is the best teacher." We in the trust business are getting a lot of
lessons. Corporate Trustees are becoming more flexible, better capitalized and national in their operation
(which in itself is creating new problems with respect to a proper forum to resolve disputes). All your clients’
trusts need review with respect to the points raised in this newsletter. Drafting can’t cover every contingency,
but the objective of flexibility and guidance for beneficiaries and trustees is something that all trust makers
should give serious thought.
If you have clients whose trusts need review and updating, with some of these considerations in mind, call
Jim Modrall at (231) 941-9660 or any of the other attorneys listed below. Incidentally, Larry Kustra is working
into this area of the practice, from a career principally as a bank attorney, which will be a valuable backstop for
me.
Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Edgar Roy, III, Matthew D. Vermetten, Thomas A.
Pezzetti, Jr., John. M. Grogan, Vicki P. Kundinger, Susan Jill Rice, Gary D. Popovits, Lawrence K. Kustra, H.
Douglas Shepherd, Jonathan J. Siebers and Karin Church at (231) 941-9660
©BRANDT, FISHER, ALWARD & ROY, P.C.
This newsletter is provided for informational purposes and should not be acted upon without professional
advice.
| WEALTH CONSERVATION: PROFESSIONAL ALERT Brandt, Fisher, Alward & Roy, P.C. |
| If you would like to receive future editions of the monthly Wealth Conservation Newsletter directly to your e-mail account, please e-mail our office using the following link: Estate Planning Newsletter |
| Brandt, Fisher, Alward & Roy, P.C. Attorneys at Law |
| June 2006 WHO IS THE TRUSTEE? by James R. Modrall III, J.D., C.P.A. |