Many people are aware of the potential benefits of creating a trust instrument as part of your estate planning arsenal. A variety of trust tools, both revocable and irrevocable, are available to help you protect the financial interests of your loved ones, avoid probate, take advantage of favorable tax laws, and more. A basic trust requires a grantor, at least one beneficiary, assets, and a trustee. A trustee is the individual or company that is responsible for the care and maintenance of any assets placed in a trust. Additionally, a trustee is normally tasked with investing trust assets in order to accumulate additional wealth. Unfortunately, sometimes a trustee simply cannot be trusted.
Whether a trust is small or large, the potential exists for a trustee to artificially inflate the fees that are paid to the trustee. One way for a trustee to inflate fees is to engage in litigation with a beneficiary or encourage disputes between beneficiaries because a trustee will normally be paid to attend any litigation out of the trust assets. Another way trust fees may be inflated is by hiring suspect or closely related investment advisors to manage the corpus of the trust. Inflated investment advisor fees are reportedly common where a grantor selects a trust company that is also affiliated with a financial investment firm as neither organization has an incentive to negotiate for reduced fees. Too often, even unnecessary fees cannot be recovered from a trust company due to liability releases that were signed by the grantor.
Despite the potential for questionable trustee behavior, there are ways to reap the benefits of creating a trust while protecting the trust assets. To do so, some trusts utilize what is called a trust protector. A trust protector is responsible for trustee oversight and has the ability to terminate a trustee that has engaged in misconduct. A trust protector may then replace the trustee with a successor trustee named in the original trust instrument. Normally, in order to ensure impartiality, a trust protector or someone close to the protector may not be named as the successor trustee.
Many of the trust instruments that are commonly used today will have a provision for a trust protector. Others, such as a trust that is created for a grantor’s benefit during his or her lifetime may also benefit from a trust protector provision. This is due to the fact that a successor trustee will take over management of the trust for the grantor’s heirs following his or her death. Because heirs may disagree or harbor grudges against one another, it may also be smart to include a trust protector provision where a beneficiary is named to act as the trustee. A trust protector has the ability to ensure the trustee acts for the benefit of all beneficiaries.
There is a lot to think about when creating an estate plan. For more information regarding how to include a trust in your comprehensive estate plan, you should speak with one of our experienced estate planning attorneys.
To start a discussion regarding creating or amending your estate plan, we invite you to request a consultation with one of our experienced, Madison area attorneys. We can help you develop a comprehensive estate plan that is right for you.