In estate planning, trusts are one of the most valuable estate planning tools you can use. Trusts are useful at minimizing estate taxes and in avoiding costly probate. There are actually many benefits. But, when it comes to trust administration, it is equally important to understand what is involved and to choose the right person or entity to serve as your trustee.
The legal definition of a trust
Trusts are essentially fiduciary agreements between a trustee and the trustor, who is the person making the trust. Fiduciary simply means the agreement is based on the trust and confidence. The trust documents give the trustee the authority to manage the trust assets and distribute them to the named beneficiaries pursuant to the terms of the trust agreement. A trust may be used in place of a will, or may be used in conjunction with a will where it only applies to certain property.
Common goals of a trust
As people accumulate their wealth, grow their retirement accounts, make their investments and purchase assets, they are developing an estate that has value. In estate planning, trusts that are properly drafted can transfer certain assets to a trustee in order to accomplish many of the following goals:
- protecting assets and ensuring their distribution according to your wishes
- protecting your estate from significant taxation and transfer fees
- managing your affairs in the event of incapacity
- facilitating charitable giving
What exactly does trust administration involve?
Regardless of your trust goals, your trust will need to be administered, which involves investment management, implementing charitable giving strategies, risk management, insurance planning and business succession planning, when applicable. The trustee you select to manage your trust and its administration will be responsible for carrying out the terms of the trust.
Who should be my Trustee?
Some will choose a trustee from their circle of family and friends. Certainly, when you need someone to provide fiduciary services, a professional fiduciary may be a good choice. These licensed professionals have specialized skills and training which can be very valuable when it comes to trust administration. He or she will also have experience managing investments and, as necessary, can hire other experts to provide the necessary services.
What are the ethical considerations of hiring a professional trustee?
In most cases, there are no legal or ethical issues that would prevent a fiduciary from serving as the trustee of a client’s trust. However, with any fiduciary role, there are ethical considerations that must be addressed. Basically, he or she must make certain disclosures to the client so the client can make an informed consent. The fiduciary also needs to ensure that there are no conflicts of interest that would otherwise make him or her unable to handle the matter.
Fiduciaries are required to exercise professional judgment
The fiduciary must refrain from violating any ethical rules regarding solicitation of clients or entering into a business relationship with a client. These rules are established by the state bar where the attorney practices law.
Obtaining informed consent from the client
As long as the client gives “informed consent” the likelihood of any ethical issues is very small. “Informed consent” means, after the fiduciary has communicated to the client all of the possible risks and the available alternatives, the client still agrees to name the fiduciary as trustee of their trust.
If you have questions regarding trusts, or any other estate planning needs, contact the Northern California Center for Estate Planning and Elder Law for a consultation, either online or by calling us at (916) 437-3500.