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Selecting a Trustee

selecting trusteeWho should you select as a successor trustee?  Think of it this way.  Who possesses the honesty, trustworthiness, ability and acumen to handle your money right now today?  The more complicated your situation the more ability is required to handle it.  If you have very difficult personal relationships then one type of person is needed.  If you have a very complicated financial portfolio then another type of person is needed.  Trustees don’t have to be able to do each task as they can and are expected to hire the expertise needed. They do need to be able to manage the different situations that arise.

You should ask the person that you want to appoint whether they would be willing to act as Trustee.  It’s not a simple job and requires not only the ability but also the time and desire to undertake the task.  There are usually some burning issues involved and most successor trustees have to drop everything to handle the situation.

  1. Mary has three children. She selects her oldest son to act as trustee who we will call Gary. Gary has personality disorders and cannot hold a job.  His employment situation has been intermittent at best. He does not get along with his sisters either.  When Mary passes away her estate is to be divided equally among the children. It’s not a big estate, maybe $100,000 in cash and a modest house.  Gary immediately moves into the house and refuses to talk to his sisters.  After about 2 years of litigation and many thousands of dollars the house was sold and proceeds divided under the supervision of a judge.
  2. Joe passed away suddenly. Joe was single and didn’t have children. He didn’t have much but he wanted to help his 12 year old niece through college. He appointed a friend to act as trustee but did not appoint another successor. The friend was too sick to accept the trusteeship. Since the trust did not have language allowing the beneficiary, or some other person, to appoint a trustee a court proceeding was necessary.

The Secret Trustee:  Sometimes a Trustee is appointed whom the family does not know.  When a grantor dies the family’s reaction of complete and total surprise is encompassed in the question “Who is this person? We have never heard of him/her.”  In other words, the trustee appointment was kept a secret from family members.  Usually the grantor has a good reason for keeping the trustee appointment a secret because the personal relationships involved are not good and disclosure of the appointment would create strife for the grantor.  Guess what?  The grantor not only saddles the successor trustee with tremendous legal responsibility but has also handed the trustee the hassle and strife that could be avoided.  The family will certainly view the successor trustee with suspicion and as an interloper.

Multiple Trustees:  Are you appointing more than one trustee?  Unless you say differently in the trust a majority of the trustees must act unanimously. If there is a problem with the trust each trustee is entitled to their own independent attorney at the expense of the trust.

Trust Jurisdiction: Trust jurisdiction is usually where the trustee resides or where trust real estate is located.  For example, if your son lives in New York then New York not California may have trust jurisdiction when your son takes over as trustee. In the case of a Corporate Fiduciary or a Bank, the trust department is almost always a different entity than the “related” financial institution. In order to avoid local consumer laws the trust department may be located in a different state meaning that jurisdiction may change when the trust department takes over. In addition, your stock account can also be relocated out of state.  You should know how this will work.

Trustee Compensation:  We are often asked how much does a Trustee get paid?  Corporate Trustees are paid according to their published schedule which can range from ¾% – 2% of trust assets annually.  Private Professional Fiduciaries also charge annual percentages.  Individual trustees are usually authorized to take “reasonable compensation”, which may range from $50-$100 per hour depending on the qualifications of the Trustee.  But if the Trustee is an attorney or CPA then they usually charge their current hourly rate or a fixed percentage.  It also depends on what the Trustee is doing because the court won’t allow $100/hr. to cut the grass; instead the court expects the Trustee to hire out that type of work at the lower rate.

Amending and Revoking Your Trust

Mrs. Johnson wanted to amend her Survivor’s Trust.  The trust provided that it could not be amended but allowed Mrs. Johnson to withdraw all of the assets of the trust. So what did the she do? That’s right, she wrote up an amendment to the trust leaving everything to her daughter. As expected, the court found the amendment to be invalid (even though she could have withdrawn all of the assets, wrote a new trust with different provisions, and then transferred the assets to that new trust). 

Trust provisions are not always what you might think they are.  If the trust allows an amendment then you must follow the trust provisions as different trusts require different procedures. If a trust says that there is a right to amend but does not say how to amend it, then state statutes say that an amendment must be in writing, signed, and delivered to the acting trustee during the lifetime of the grantor.

If the trust says the amendment must also be notarized then it must be notarized. The trust can impose other methods of amending as well, particularly where the requirement is aimed at preventing undue influence or incompetent acts.  For instance in “Senior Protective Trusts” the amendment may have to be delivered to the child.

If a trust says it can be revoked but does not say it can be amended, it can be amended because the power to revoke includes the power to amend.

Okay, this is all very legal stuff, but it is extremely important. If you are going to amend your trust you should read the provision(s) of your trust pertaining to amendments to remind yourself of the procedure.

Capacity to Amend or Revoke

The capacity required to amend or revoke a trust depends upon the complexity involved. A simple amendment requires the capacity needed to execute a will. A complex amendment requires the capacity needed to execute a contract.

ALERT-Elimination of Discounts in Family Ltd. Partnerships

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Suppose Mom & Dad own apartment buildings worth $15M (net). Normally they would consider establishing a family partnership with their children that would allow their estate to report the value of the buildings as a lower value like say $10M.  This dynamic is called “discounting”.

The IRS has recently announced that it is poised to issue proposed regulations eliminating discounts in family member only entities such as limited partnerships, LLCs, and corporations.  The new proposed regulations may come as soon as September 1, 2015.  Normally, proposed regulations are not effective until they become final.  BUT the IRS has stated that this regulation will be effective retroactively to the date of announcement which will be in September 2015. (The IRS applied retroactive effect to its 2006 proposed regulation regarding the income taxation of private annuities. 9 years later those regulations are still not final.)  After years of urging Congress to make these changes, the IRS has figured out it can make the changes without Congressional involvement. This regulation will affect transfers made after the date of regulations.

 

This regulation will affect single persons with a net worth exceeding $5.43M and married couples with a net worth exceeding $10.86M.  Implementation of minority discount strategies take time.  If you have a Family Limited Partnership or Family LLC call the office immediately. Any family that could benefit from minority discounts should implement the strategy immediately.

Beneficiary Bill of Rights

A beneficiary has so many rights under a trust they can’t be covered in one page. Below is a summary of the main rights a beneficiary has.

 If the Grantor is proved to be incompetent or has died – the trust beneficiary has:

1. The right to a true, complete and final copy of the trust, any written amendments thereto, and any written instructions that effect distribution of trust assets;

2. The right to contest the validity of a questionable trust, and any of its provisions or amendments;

3. The right to be reasonable informed about the trust and its administration. Upon reasonable request, a beneficiary is entitled to a report of information about assets, liabilities, receipts and disbursements of the trust, the acts of the Trustee, and the particulars relating to the trust that are relevant to your interest;

4. The right to an accounting. The accounting must include the Trustee’s written statement of receipts, disbursements, the nature and value of assets and liabilities, the Trustee’s compensation, the names of the agents hired by the Trustee, their relationship to the Trustee and their compensation;

5. The right to object to an accounting, and to seek judicial review and approval of any accounting you receive;

6. The right to compel a Trustee to: administer the trust according to its terms, avoid conflicts of interest, avoid self-dealing, and to secure and make trust property productive;

7. The right to be treated fairly and impartially by the Trustee;

8. The right to ask a Judge to suspend the Trustee of his powers or remove him and appoint a successor Trustee, or both;

9. The right to seek legal redress for misappropriation, mismanagement, bad investments, or waste of trust assets,

10. The right to receive timely distributions from the trust without signing any documents.

Century Club Long Beach

Vito Lanuti, president elect for the Long Beach Century Club and its members,  presented a $38,500 donation to Long Beach schools: Cabrillo, Jordan, Lakewood, Millikan, Poly, St. Anthony, Long Beach City College and Long Beach State, with the goal of supporting the athletics department in each school.

Formed in 1957, the Long Beach Century Club is comprised of 300 members ranging from business and sports figures who contribute financially and donate their time to help support youth through athletics.  As reported by Press Telegram, “The fundamental part of what we’re able to do is based on our fundraising,” says Century Club treasurer and past president John Fylpaa. “The favorite thing from my perspective is that we can support all levels: the high schools, LBCC and Long Beach State.”  The Club expects to increase the grant for next year and be able to continue supporting the youth in Long Beach.

The seven high schools mentioned above will each receive a $2,500 grant, Long Beach City College will receive $8,000 and Long Beach State will receive $13,000. The representatives that attended the meeting will be returning to the club throughout the year to share how the funds are being used.

Should you wish to become a member of the Long Beach Century Club or donate, please visit www.lbcenturyclub.org.

ReferencePress Telegram (June 6, 2015) “Century Club makes record donation to Long Beach schools

Reference: Long Beach Century Club   (www.lbcenturyclub.org)