When it comes to long-term financial planning, trusts can be excellent vehicles for transferring wealth, mitigating estate and inheritance taxes, and providing for your heirs. But granting someone else control of your assets can be unsettling — and for good reason. Oftentimes, families surrender far more control over their assets than necessary and find themselves dissatisfied with their passive role.
How Trusts Work
There are many different kinds of trusts, each with a unique purpose. But, fundamentally, a trust is a legal document outlining a fiduciary relationship between three parties:
- A donor (or grantor): the person funding the trust
- A beneficiary: the person to receive the benefits from the trust
- A trustee: the person the donor appoints to manage the assets in the trust accounts (in revocable living trusts, the grantor and trustee are often the same)
The third-party trustee manages the assets in the trust on behalf of the beneficiary as outlined by the donor in the trust documents.
Trustees can be invaluable allies when it comes to the protection, management, and distribution of your assets.
With the ultimate goal being to protect your assets under the management of a trust, you may want to be sure to remain an active participant and decision-maker alongside the trustee by following the below guidelines.
1) Maintain the Power to Remove or Replace Your Trustee
Trustees bear a great deal of responsibility. Managing investments, keeping accurate records, filing tax returns, making distributions in accordance with the trust documents, and reporting to the beneficiaries, as required, are just a few of a trustee’s most basic duties.
The decisions made by your appointed trustee can directly impact the performance and distribution of your assets, so it is imperative to maintain a healthy level of control over your trust’s management. One of the easiest and most effective ways to maintain control over your trust is to provide in the paperwork that the trustee can be removed if necessary. This provision incentivizes the trustee to make sound financial choices regarding the management and distribution of your assets.
2) Consider Being a Non-Independent Trustee
Even though you may not have the authority to request distributions from the trust (as only the trustee can do), does not mean you have to forego being an integral part of the investment process meant to cultivate and preserve your family’s wealth. Any beneficiary, or grantor, can serve alongside the independent trustee to give input on any trust matters. This allows the family to maintain some jurisdiction over their investments without violating the tenets of the trust document.
3) Choose a Directed Trust Over a Discretionary Trust
The use of directed trusts has significantly increased in recent years. Many see directed trusts as a way to limit liability through the distribution of responsibilities amongst multiple professionals. Unlike a discretionary trustee who single-handedly manages trust execution, a directed trustee is advised on which actions to take by one or more outside advisors. In some cases, a grantor can even appoint himself, or his family member, to serve as one of the investment advisors.
While each of these methods can be an effective way to retain control over your assets, only you, with the help of your attorney, can know which model will best fit your family’s needs. If you’re interested in discussing options such as these in more detail, our team of advisors is here to help.
Investment Advisory Services offered through Resolute Wealth Advisor, Inc., a Registered Investment Advisor.
Resolute Wealth Advisor does not provide tax or legal advice. This material was not intended or written to be used or presented to any entity as tax advice or tax information. Tax laws vary based on the client’s individual circumstances and can change at any time without notice. Clients are urged to consult their tax or legal advisor before establishing a retirement plan.