2014 Family Wealth Conference

Transcription

1 2014 Family Wealth Conference

2 Perry Mangione, Moderator William Blair & Company Kim Kamin Gresham Partners Choosing a Trustee: Who Best Will Represent Your Interests?

3 William Blair Family Wealth Conference Building an Enduring Legacy Choosing a Trustee: Who Best Will Represent Your Interests? September 19, :00 11:50 am Kim Kamin, Principal Chief Wealth Strategist Gresham Partners, LLC 333 W. Wacker Dr., Suite 700 Chicago, IL [email protected] 2014 Gresham Partners, LLC. All Rights Reserved.

4 Introduction The discussion today addresses the following questions: What is a trust? Why transfer property in trust? What is the trustee s job? What are the duties? What qualities are important in a trustee? Who are the choices to be trustee? Questions to ask when selecting an individual trustee? Possible conflicts to consider? Questions to ask when selecting a corporate trustee? How to protect potential trustees? 4

5 Preliminary Inquiries Creating The Trust: Why am I creating the trust in the first place? What is the purpose of the trust assets? What is my value system? What are my goals? What do I fear? How much control do I want to exert? Do I care if my instructions are changed in the future? 5

6 What Is The Trustee s Job? Administration Distributions Investments 6

7 What Are The Trustee s Duties? Duty of Loyalty Duty of Prudence Duty of Impartiality Duty to Preserve and Protect Property Duty to Administer Trust by its terms Duty of Confidentiality Duty to Provide Information and Accounts Duty to Maintain Accurate Records Duty Not to Delegate Duty to Distribute Duty to Enforce and Defend Claims Duty to File Taxes 7

8 What Qualities Are Most Important In A Trustee? Honesty and Trustworthiness Wisdom and Good Judgment Attention to Detail Time to Devote Accessibility and location 8

9 Who Are The Choices To Be Trustee? Self (Settlor) Individual Family Members and Friends Spouse Child/Beneficiary Other Family Members Business Partner Other Close Friends 9

10 Who Are The Choices To Be Trustee? (con t.) Independent Advisor Attorneys Accountants Financial Advisors Insurance Advisors Trust Company Large Bank With Trust Powers State Chartered Bank (public) Private Trust Company 10

11 Bad Reasons For Selecting An Individual Trustee: Oldest child has some inherent right Desire for all children to act together Don t want to insult or hurt feelings (e.g., of the guardian) Desire for individual to work for free Because a lawyer or other advisor suggested himself or herself 11

12 Questions When Selecting An Individual Trustee: How well does she know you and your family? What skills does he bring to the table? Can she say no without being dictatorial? Does he understand the family dynamics? Can she be patient with beneficiaries, a mentor? Can he be impartial? Do the beneficiaries know and respect her? Is he competent and fully understanding the scope of the job? And last, but certainly not least... 12

13 Is the individual well-organized? 13

14 Possible Conflicts to Consider: Structural Conflicts What other hats do they wear? Attorney, accountant, investment advisor? Malpractice coverage, compliance issues for investment advisors? Business or fiduciary relationship with any business held by trust? Relationship Conflicts Sibling trustee for sibling? Child trustee of spouse from second marriage Players behind the scenes (spouses, business partners) Impartiality complicated by pre-existing family and friendship ties 14

15 Questions When Selecting A Corporate Trustee: Number and characteristics of similar trusts for which they serve as trustee? Will they be directed with regard to investments, or do they prefer to handle investments? Investment approach used for similar trusts? - Asset allocations among traditional and non-traditional asset classes? - How are investment services and products selected? - Are internal or other proprietary investment services or products used? If so, how is it disclosed and how does it impact trustee fees? - Are external investment services or products used? If so, how is any revenue or other economic benefit received by the institution for those services or products disclosed and how does it impact trustee fees? 15

16 Questions When Selecting A Corporate Trustee: (con t) What process is used to determine discretionary distributions and other exercises of discretion? Examples? How do they handle special characteristics of the trust, like: - Concentrated positions in the trust s investment portfolio? - Non-traditional assets in the trust s investment portfolio? - Unequal treatment of current beneficiaries? - Conversion to a total return approach? - Communications with beneficiaries who have adverse interests? - Relationships with a special trustee or investment advisor named in the trust agreement? 16

17 Questions When Selecting A Corporate Trustee: (con t) Descriptions and examples of the reporting capabilities and investment performance assessments that will be used for the trust? Any trust-related litigation or regulatory problems in recent years? Background of the people who will provide trustee services for the trust, those to whom they report, and how long they have been in their current positions? 17

18 Questions When Selecting A Corporate Trustee: (con t) How does the institution use external firms to provide trust-related services, including insurance, tax compliance and estate planning services? How will the trust be charged for services provided by the institution and external firms it expects to use? How will interest paid on cash balances in the trust accounts be calculated? 18

19 Analysis Of Corporate Trustee Answers What are the motivations and priorities of those providing trustee services? Will the institution s receipt of revenue from the internal or external investment products or services affect its ability to be loyal, impartial and prudent? Does the institution s history, stated priorities and current delivery of services model indicate that: - The trust will receive on a continuing basis the desired level of resources and personal attention from the people who will be providing the trustee services? - Transitions to new resources and new people within the institution will be handled effectively? - Trustee discretion will be exercised on a continuing basis with the desired level of flexibility? 19

20 Protecting Potential Trustees What is the risk to personal assets if sued? Does the trust relieve the trustee of liability for mere negligence and only hold the trustee accountable for bad faith? Will the trust both indemnify and authorize the trust to purchase fiduciary liability insurance? What is the governing law and is it a good jurisdiction for trusts and trustees? Is there a good process for the trustee to resign and for additional or successor fiduciaries to be appointed? 20

21 Protecting Potential Trustees (con t.) Is the trust flexible enough to permit modifications or decanting as times change? Does the trust instrument permit self-dealing, conflicts of interest, delegation, and directed trustees? Does the trust instrument waive the duty to diversify? What are the accounting and reporting standards to whom to account, how often and how is the trustee protected? What fees can the trustee take? 21

22 Conclusions and Homework Creating the right trustee structure and selecting the right individual and/or corporate trustee will be a personal decision unique to each family. Review your existing documents. Are you comfortable with whom you name as trustee? Do you have adequate protections for the trustee? Did you build in sufficient flexibility? Be sure to discuss the structure and selections with your advisors and ask any questions. 22

23 The presenter thanks her colleague, Wally Head, and Jason Ornduff of Harrison Held, for some of the content that was integrated into these materials. She also thanks Christopher Brathwaite and Perry Mangione of William Blair for their collaboration. These materials are intended to provide the seminar participants with general guidance. The materials do not constitute, and should not be treated as, legal advice regarding the use of any particular estate planning technique or the tax consequences associated with any such technique. Gresham Partners, LLC does not provide legal advice and does not assume responsibility for any individual's reliance on the written information disseminated during the seminar. Each seminar participant should independently verify all statements made in the materials before applying them to a particular fact situation, and should independently determine both the tax and nontax consequences of using any particular estate planning technique before recommending that technique to a client or implementing it on a client's or his or her own behalf. The author welcomes your questions or comments about these seminar materials. In addition, kindly inform the author if you become aware of any errors or omissions within these materials. Gresham Partners, LLC is a nationally recognized, independent firm serving select families, family offices, trusts and foundations as a multi-family office. Committed to delivering highly personalized wealth planning services, Gresham s client-focused solutions feature working with outside managers. With over $4 billion of assets under advisement, Gresham s Risk Conscious investment platform and holistic wealth planning are focused on preserving and growing clients assets. 23

24 KIM KAMIN is a Principal at Gresham Partners, LLC where she serves as Chief Wealth Strategist and a Client Advisor. She leads Gresham s development and implementation of estate, wealth transfer, philanthropic and fiduciary planning activities, and advises clients. Until recently she was a partner in the Private Clients, Trusts and Estates Group at Schiff Hardin LLP where for seventeen years her legal practice involved all aspects of trust and estate planning, administration and dispute resolution: advising individuals, families and closely held businesses on a wide array of wealth preservation, asset protection and succession planning issues; representing fiduciaries, custodians, and beneficiaries in estate administration and contested trust and estate matters; and serving as counsel for the formation and operation of not-for-profit entities. Kim is an adjunct professor at the Northwestern University School of Law where she has taught Advanced Trusts and Estates, the Income Taxation of Trusts and Estates, and Estate Planning. Kim is on the Editorial Advisory Board of Trusts and Estates Magazine. She has published on various topics relating to asset protection, estate administration, powers of appointment and funding with discounts. She is also a frequent lecturer in a variety of venues. Kim serves on the Board of Directors for the Chicago Estate Planning Council, on the Chicago Community Trust Professional Advisory Council, on the Art Institute of Chicago Gift Planning Advisory Committee, and on the Northwestern Memorial Foundation Council for Philanthropy. She also serves on the Chicago Stanford Association s Board of Leaders. She is a member of The Economic Club of Chicago, where she serves on the Young Leaders Committee. Kim is a Fellow with the American College of Trust and Estate Counsel where she chairs the New Fellows Steering Committee. Professional awards and recognitions include Illinois Attorney Under 40 To Watch by the Law Bulletin Publishing Company (2008), The Best Lawyers in America in the practice areas of both Trusts and Estates, and Litigation - Trusts & Estates, U.S. News and World Report (2012-present), an Illinois Rising Star in Illinois Super Lawyers (2009, 2011), a Super Lawyer in Illinois Super Lawyers (2012-present), a Leading Lawyer in Trust, Will & Estate Planning Law with the Illinois Leading Lawyer Network (2010-present), and "AV Rated" by Martindale-Hubbell. Kim is a member of the Chicago Bar Association and the American Bar Association. Kim received her B.A., with distinction and departmental honors, from Stanford University and her J.D. from the University of Chicago Law School. 24