The script is not the play. The play is actors giving life to the script. Printed notes are not the music. Music is musicians creating the melody from the notes.
With personal financial arrangements, the trust is not the protection for your family or business. The protection comes when the trustee acts skillfully to fulfill the provisions outlined in the trust.
A trust can be a means to protect your family or business against the unexpected. At any time, you could become disabled or otherwise be unable to manage your assets. Unless you have someone that is highly competent to step in for you—perhaps for a prolonged period—your family and business financial affairs could suffer.
You can’t assume that your family would get through with the aid of relatives and friends. However, well intentioned, they certainly have other cares and responsibilities that could conflict with your family’s needs. Informal arrangements cannot substitute for a definitive legal plan to provide proven investment skills and experience in caring for substantial assets.
That is the reason for setting up a trust. It can serve as the framework to protect your family and business interests.
You decide what assets to include in the trust. You decide whom the trust will benefit, and to what degree. The person or institution that serves as the trustee has the responsibility of overseeing the property as you define it in the trust agreement. So, the skills and competence of your trustee are what determine how well your trust will protect your family and business. Certainly the choice of trustee is critical when you set up your trust.
Evaluating a trustee’s duties and thinking through who’s best to address the tasks is best done when you have some time and a clear head. In other words, don’t put it off, and don’t make a rush decision.
As a fiduciary, your trustee is obligated by law to follow a strict standard of care for your trust. Yet almost any adult can be a trustee. The law does not require any skills.
Making sure your trustee can do the job that’s needed is up to you when you name the individual or company to be your trustee. Your trust agreement will define your trustee’s specific duties. These will generally require investment expertise, tax experience, business knowledge, plus administrative and reporting capabilities. You wouldn’t call a plumber to fix a refrigerator. It’s logical that there are benefits to choosing an experienced trustee, who knows how to effectively do the things that you require. Usually, that means your trustee will tackle the following tasks:
Invest the trust assets.
Distribute income and/or principal to your beneficiaries.
Make trust tax decisions.
Maintain transaction records.
Prepare account statements and tax reports for your beneficiaries.
File the trust’s income-tax returns.
A trustee can be, but doesn’t have to be a family member or business partner. There are professional trustees and investment managers who can do the job. Talking to your peers and investigating these options can be time well spent.
In contrast to an individual trustee, a reputable professional service won’t die or move away. These businesses give priority to managing your trust. They can pull from vast experiences and legal knowledge. The services also are available full time, always ready to assist you and your beneficiaries.
Of course, these decisions are yours to make. If you want to know more about trustees or trusts in general, it’s best to contact your financial advisor and/or attorney to discuss the many options and identify what’s right for you.
This column is produced by Financial Planning Associates, and is provided by R. Hutton Cobb, a Wachovia Securities financial advisor in