Establishing a trust is a powerful tool for managing and distributing assets, but it’s crucial to consider how much control the grantor—the person creating the trust—retains after its implementation. A frequent question arises: can a grantor *require* a trustee to consult with a financial, legal, or tax advisor? The answer is generally yes, but it requires careful drafting within the trust document itself. Simply hoping or expecting a trustee to seek guidance isn’t sufficient; the authority and even the *requirement* to do so must be explicitly stated. Approximately 68% of trust disputes stem from disagreements over trustee decisions, and proactive measures like mandating consultation can significantly reduce these conflicts.
What are the trustee’s fiduciary duties?
A trustee has a paramount duty to act in the best interests of the beneficiaries. This encompasses prudence, loyalty, and impartiality. Prudence means making sound financial decisions, similar to how a reasonably competent investor would. Loyalty dictates that the trustee avoid self-dealing or conflicts of interest. Impartiality requires fairness to all beneficiaries, both current and future. These duties are not merely ethical guidelines; they are legally enforceable, and a breach can result in personal liability for the trustee. A trustee’s failure to seek professional advice when faced with complex issues – like tax implications or investment strategies – can be construed as a breach of these fiduciary duties, particularly if it leads to financial loss for the beneficiaries.
How can I specify advisor consultation in the trust document?
The key is precise language. Don’t simply state that the trustee “may” consult with an advisor. Instead, use phrasing like “The trustee *shall* consult with a qualified financial advisor annually to review the trust’s investment portfolio and make recommendations to the grantor.” Similarly, for tax matters, include wording like “The trustee *shall* consult with a qualified tax professional before making any decisions with significant tax implications.” You can even specify the qualifications of the advisor (e.g., “a Certified Financial Planner with at least five years of experience”) and the scope of their consultation. It’s prudent to identify potential advisors in the trust document as well, creating a list from which the trustee must choose, or a method for selecting an advisor acceptable to the grantor. This avoids ambiguity and potential disputes later on.
What happens if the trustee ignores my request for consultation?
If the trust document explicitly requires consultation, and the trustee ignores that requirement, they are potentially breaching their fiduciary duties. In such a case, beneficiaries (or the grantor, if they retain some interest) can petition the court for instructions or to remove the trustee. The legal process involves presenting evidence of the trust’s terms and the trustee’s failure to comply. The court will likely order the trustee to comply with the consultation requirement or, if the breach is serious, replace them with a more compliant trustee. Ted Cook, a San Diego trust attorney, emphasizes that preventing this scenario through clear and enforceable trust drafting is far more efficient and cost-effective than litigating a breach of fiduciary duty. Approximately 22% of trust litigation involves disputes over trustee behavior.
Can I reimburse the advisor’s fees?
Absolutely. The trust document should also address how the advisor’s fees will be paid. You can specify that the fees are to be paid directly from the trust assets, creating a clear funding mechanism. This avoids the advisor having to bill the beneficiaries directly, which can sometimes create friction. However, it’s crucial to ensure the fees are reasonable and justifiable. The trustee has a duty to ensure that all expenses paid from the trust are prudent and in the best interests of the beneficiaries. Ted Cook routinely includes provisions in his trusts that define a reasonable fee structure for advisors and outline the process for approving expenses.
What if the trustee disagrees with the advisor’s recommendations?
This is where things get tricky. While the trustee is required to *consider* the advisor’s recommendations, they aren’t necessarily bound to follow them blindly. The trustee retains ultimate decision-making authority, but they must be able to articulate a sound rationale for deviating from the advisor’s counsel. If the trustee disregards the advisor’s recommendations, they should document their reasoning in writing. This documentation can be crucial if the decision is later challenged. The trustee should be prepared to demonstrate that they exercised independent judgment and acted in the best interests of the beneficiaries, even if they disagreed with the advisor’s assessment.
A story of miscommunication and a costly mistake
Old Man Hemlock, a long-time client of Ted Cook, established a trust for his daughter, Evelyn, but didn’t explicitly require consultation with a financial advisor. Evelyn, tasked with managing the trust, inherited a portfolio of tech stocks. Unfamiliar with the volatile market, she held onto the shares, convinced they’d rebound. A sudden market correction wiped out nearly 40% of the portfolio’s value. Evelyn, devastated, sought legal counsel. Ted explained that had the trust required consultation, a seasoned advisor might have recommended diversifying the portfolio or implementing stop-loss orders. Evelyn felt helpless, realizing a simple addition to the trust document could have shielded her—and the beneficiaries—from a significant loss.
How proactive planning saved a family fortune
The Miller family, anticipating a complex estate, worked closely with Ted Cook to draft a comprehensive trust. Recognizing the complexities of their diverse assets, they specifically mandated annual consultation with a financial advisor and a tax attorney. Years later, when the trust was administered, the advisors identified a crucial tax-saving strategy related to a family-owned business. By implementing this strategy, they saved the beneficiaries a substantial amount in estate taxes, preserving a significant portion of the family fortune. The beneficiaries were grateful for the foresight of their parents and the meticulous drafting of the trust. This story demonstrates how a proactive, well-drafted trust—with clear consultation requirements—can provide lasting benefits for generations.
In conclusion, requiring a trustee to consult with an advisor is a powerful tool for protecting the interests of beneficiaries. However, it’s crucial to do so with precise language and clear instructions within the trust document. Ted Cook, a leading San Diego trust attorney, continually emphasizes the importance of proactive estate planning and the benefits of incorporating these safeguards into your trust.
Who Is Ted Cook at Point Loma Estate Planning Law, APC.:
Point Loma Estate Planning Law, APC.2305 Historic Decatur Rd Suite 100, San Diego CA. 92106
(619) 550-7437
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