Law Office of Mark A. Schaum, P.A. Legal Blog

Wednesday, January 28, 2015

Choosing the Right Trustee

Written by Mark A. Schaum

For some people, selecting a Trustee or Trustees to carry out the terms of their Will or Trust can be challenging.  The selection process involves the balancing of various factors both personal and professional.  Sometimes, there are no family members that have the ability, maturity, or desire to handle such responsibility. In other cases there may be conflicts or potential conflicts between beneficiaries, particularly in second marriage situations.  Sometimes using a trusted friend, attorney or accountant as either the sole Trustee or as a Co-Trustee (or possibly as a tie-breaker) can work, but as discussed below, there can be down sides to such choices.  Thus, in certain cases, the use of a professional “Corporate Trustee” may be the best solution.

Contrary to what some may think, you do not have to be a member of the Rockefeller family or its equivalent to utilize a Corporate Trustee.  Indeed, certain banks and brokerage companies provide trust options to accommodate families of modest wealth at fees that are relatively competitive for the services offered. There are also dedicated Trust Companies to choose from.

Duties of a Trustee - To make a suitable selection for the position of Trustee, it is important to have a basic understanding of the duties of a typical trustee.  In broad terms, it is the Trustee's job to carry out the objectives of the person who created the trust by complying with the terms (and the spirit) of the trust agreement.  Among the tasks included in this role are: (1) making distributions of income and principal to the trust beneficiaries, (2) taking steps to minimize taxes, (3) collecting the income and rents of the trust assets, (3) paying the various administrative expenses of the trust, (4) engaging professionals as needed to handle various trust matters including preparation of annual tax returns, (4) taking steps to maintain and preserve trust assets including the upkeep of adequate insurance coverage, (5) managing the trust assets which typically includes liquidating and reinvesting trust assets as necessary, and (6) providing regular accountings to the beneficiaries of  all actions taken .  Further, if the trust document gives the Trustee discretionary powers to distribute income or principal to the beneficiaries, the Trustee must weigh the needs of the beneficiaries seeking distributions with the interests of the remainder or other beneficiaries and with the long range objectives of the trust.  Depending on the terms of the Trust, the Trustee's role could extend for a period of many years.  Finally, if a Corporate Trustee is also selected to act as the Personal Representative for the estate, the duties will include locating and establishing the decedent's last Will with the court, paying the debts of the estate, paying the taxes and expenses of administering of the estate, and distributing the assets of the estate to the beneficiaries of the estate (which may include ongoing trusts for the benefit of certain beneficiaries).

Advantages of Using A Corporate Trustee

Invulnerable To Human Frailties - Unlike an individual Trustee, a Corporate Trustee won't get sick, die, move, take an extended vacation, or steal assets from the trust.  This aspect is particularly important if your Trust is structured to continue for many years.  Moreover, while an individual may grow tiresome of the job or have other personal or business commitments to which they give priority, a Corporate Trustee will always be ready to serve.  That's their job.
Investment expertise - Corporate Trustee are in the business of managing and investing money and some have excellent track records in this regard.  Generally, a Corporate Trustee will have a prudent and conservative investment philosophy because it recognizes that the return of capital is more important than the return on capital.  Most Corporate Trustees typically have investment committees safeguarded by a system of checks and balances.  This is a feature which an individual trustee usually lacks.

Record keeping - Corporate Trustees typically have computerized bookkeeping systems to keep track of the Trust's investments and distributions to beneficiaries.

Financial security - If sued, a Corporate Trustees typically will be able to pay for the damages caused by its wrongful or negligent acts.  In contrast, if an individual is sued (presuming you can locate him or her), collection will be limited to the individual's personal assets.

Competence as Trustee - While an individual Trustee may be competent in certain business matters, he or she may not be competent to manage a Trust; few individuals have significant experience acting as a Trustee.

Avoid Conflicts of Interest - Where in many cases there is the potential for a conflict of interest with an individual Trustee, a Corporate Trustee will not possess any other interest that would conflict with their role as Trustee.  There are a variety of situations, both business and personal, in which this can become an issue:

(1) Personal conflicts between beneficiaries, particularly when there is a second marriage situation with children from a prior marriage, or when siblings have a history of not getting along with each other. 

(2) Naming a business associate as Trustee could cause a conflict of interest if the business associate is faced with a decision that would favor the business interest over the interests of the other beneficiaries. 

(3) Sometimes the mere appearance of a conflict of interest will prevent a Trustee from acting.  Since a Corporate Trustee will not be personally involved with any of the beneficiaries, it is less likely to be accused of either favoritism or prejudice towards a beneficiary.

Avoids Negative Tax Consequences - In certain situations, naming an individual trustee that is not deemed to be an independent trustee (by the IRS), could result in adverse income or estate tax consequences. A discussion of this topic is beyond the scope of this article.  Corporate Trustees will always be deemed to be independent for these tax purposes.

Disadvantages of Using a Corporate Trustee:

Fees- In many respects, the old saying applies "you get what you pay for".  Compared to what a friend or relative might charge, Corporate Trustee fees may be relatively higher.  But, to get the benefits and protection discussed above, you've got to pay for it.   With a Corporate Trustee, you will generally know what the fees will be in advance because all Corporate Trustees have published fee schedules.  Thus, after analyzing the alternatives, you may find that the after tax cost of the fees are well worth the services that are being provided.

Sensitivity: While in some cases it may be advantageous to not be personally involved with the beneficiaries, it can sometimes be disadvantageous to subject the beneficiaries to a layer of bureaucracy that might not exist with an individual trustee.  How sensitive will a Corporate Trustee be to the beneficiaries’ needs and concerns?  Will a Corporate Trustee be as caring as a friend or other relative might be?
Personal knowledge of beneficiaries- Although trust officers generally strive to understand the special needs of the beneficiaries, they may lack the special knowledge of the family background that another individual might possess.

Possible Solutions to Mitigate Disadvantages:

Naming individual co-trustees: To balance the lack of personal qualities that a Corporate  Trustee may lack, one can also name individuals trustees (such as friends, relatives, children or a spouse) to act along with the Corporate  Trustee.

Granting removal and replacement powers- If you are concerned that your beneficiaries may not be happy with the Corporate Trustee that you have selected, you could give a beneficiary (or group of beneficiaries or a named Trust Advisor) the power to remove the Corporate Trustee and replace it with another Corporate Trustee of their choice.  There may be good reasons for allowing the beneficiaries to do this: (1) poor performance by the Corporate Trustee or (2) a change in the Corporate Trustee's personnel (from the warm and friendly people which you dealt with).

Shop for a suitable corporate trustee- All Corporate Trustees were not created equally. Some are more suited to dealing with larger trust accounts.  Also, fee structures among Corporate Trustees can vary widely.  A large Corporate Trustee may have greater depth in its diversification of services, but a smaller Corporate Trustee may be more personable with your beneficiaries.  Shop around, visit several offices, meet their personnel, review their track records and fee structures to find one that best fits your situation and needs.

Conclusion - a qualified estate planning attorney can be very helpful in assisting you to choose the right in the Trustee for your Will or Trust. If you do not have an estate planning attorney or want a second opinion, feel free to call me for an appointment.  

Mark has been practicing law in Boca Raton for over 25 years.  He is Board Certified in Wills, Trusts and Estate law and is also a CPA.  His office address is 1801 N Military Trail, Suite 203, Boca Raton.  He can be reached at or 561-750-7575.


Wednesday, November 26, 2014

Estate Plan Check-up

Just as you should periodically review your investments to determine if they are meeting your current objectives, you should periodically have your estate plan and the related estate planning documents reviewed .  If you haven't had your estate planning documents reviewed recently, perhaps it is time for a check-up.  In our practice, we find that estate plans need to be reviewed or modified for the following reasons:
Read more . . .

Thursday, October 30, 2014

Did you update your Power of Attorney?

By Mark A. Schaum

The Florida legislature recently enacted legislation which beefed up the previously modest (7 page) statute concerning powers of attorney under Chapter 709 into a comprehensive set of provisions that is now known as “The Florida Power of Attorney Act” (hereinafter “The Act”) which became effective on October 1, 2011 (now 27 pages in length). Due to an array of issues that arose over the years in recognizing these documents, the Act is intended to insure that, when certain requirements are met, these documents will be recognized. As a consequence of the Act, additional duties  and responsibilities are imposed upon both the Agents (the people named to act under the Powers of Attorney) and Third Parties (such as financial institutions). Certain people granting these powers (“the Principals”) may have to have their Power of Attorney (“POA”) documents reviewed and updated at their expense. This article summarizes what the author believes are the most pertinent provisions relating to Durable Power of Attorney documents.

Read more . . .

Thursday, February 14, 2013

2013 Changes to Federal Estate Tax Laws

Changes to income taxes grabbed the lion’s share of the attention as the President and Congress squabbled over how to halt the country’s journey towards the “fiscal cliff.”  However, negotiations over exemptions and tax rates for estate taxes, gift taxes and generation-skipping taxes also occurred on Capitol Hill, albeit with less fanfare.

The primary fear was that Congress would fail to act and the estate tax exemption would revert back down to $1 million.  This did not happen.  The ultimate legislation that was enacted, American Taxpayer Relief Act of 2012, maintains the $5 million exemption for estate taxes, gift taxes and generation-skipping taxes.  The actual amount of the exemption in 2013 is $5.25 million, due to adjustments for inflation.

The other fear was that the top estate tax rate would revert to 55 percent from the 2012 rate of 35 percent.  The top tax rate did rise, but only 5 percent from 35 percent to 40 percent.

The American Taxpayer Relief Act of 2012 also makes permanent the portability provision of estate tax law.  Portability means that the unused portion of the first-to-die spouse’s estate tax exemption passes to the surviving spouse to be used in addition to the surviving spouse’s individual $5.25 million exemption.

Some Definitions and Additional Explanations
The federal estate tax is imposed when assets are transferred from a deceased individual to surviving heirs.  The federal estate tax does not apply to estates valued at less than $5.25 million.  It also does not apply to after-death transfers to a surviving spouse, as well as in a few other situations.  Many states also impose a separate estate tax.

The federal gift tax applies to any transfers of property from one individual to another for no return or for a return less than the full value of the property. The federal gift tax applies whether or not the giver intends the transfer to be a gift.  In 2013, the lifetime exemption amount is $5.25 million at a rate of 40 percent.  Gifts for tuition and for qualified medical expenses are exempt from the federal gift tax as are gifts under $14,000 per recipient per year.

The federal generation-skipping tax (GST) was created to ensure that multi-generational gifts and bequests do not escape federal taxation.  There are both direct and indirect generation-skipping transfers to which the GST may apply.  An example of a direct transfer is a grandmother bequeathing money to her granddaughter.  An example of an indirect transfer is a mother bequeathing a life estate for a house to her daughter, requiring that upon her death the house is to be transferred to the granddaughter.

Law Office of Mark A. Schaum, P.A. is located in Boca Raton, FL and serves clients throughout Palm Beach County and Broward County, including: Delray Beach, Boynton Beach, Coconut Creek, Pompano Beach, Lake Worth, West Palm Beach, Palm Beach Gardens, Ft Lauderdale, Miami, Jupiter, Hollywood, Coral Gables and the state of Florida.

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| Phone: 561.750.7575

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