Choosing Northwest Trustee & Management Services Over Family and Friends
Stephen Trefts, President
Each year we ask, “How we can better serve our advisors and clients?” As our firm reflects on this, we find a common theme among a majority of the situations in which Northwest Trustee & Management Services is appointed as trustee or personal representative. We are often asked to “step in” to assist or replace a family or friend who is not capable or willing to serve.
As we share a few stories of trusts and estates we received last year, the risks of naming a family member or friend as trustee or personal representative are highlighted. We hope you can leverage these stories to assist in selecting the best fiduciary for your plans.
When families have conflict, a trust often exacerbates that conflict.
In an all too familiar scenario, a mother and father named their daughter and son as co-trustees of several trusts upon their deaths. The co-trustees were empowered to make discretionary decisions, but they carried anger and bitterness towards each other and could not agree on anything. To complicate matters, the assets included investments, lake property in another state, various boats, and valuable collections. The two children were entitled to equal shares of the trusts, but didn’t agree on which specific assets they should receive or how they should be divided. Upon the death of both parents, and at the recommendation of an estate planning attorney, both children resigned and appointed us. Our role greatly reduced the families’ conflicts and both parties know we are impartial in our approach and will serve them equally.
We often see a “good” child appointed as trustee over a “wayward” brother or sister. Parents could spare their children much angst and save significant legal fees by avoiding the simple mistake of naming an adult child as a trustee for another sibling with whom there are deep-seeded problems.
Trust management takes time and expertise, and often the named family or friend ultimately declines to serve or reluctantly serves.
When a professional was killed in a small town in central Washington, we took over the management of her securities portfolio, several annuities, many bank accounts, as well as 11 rental properties with extensive maintenance needs. The deceased had all of her assets titled in a trust where she was the trustee and a friend was her alternate. The friend had a busy life, a full-time job and no experience in managing trusts or serving beneficiaries. She sought out a professional, resigned immediately as trustee, and appointed us. This long-term trust continues for the life of the deceased’s three children and grandchildren. In our first year as trustee, we assisted two of her children with moves to better accommodations, acted as the trustee for a “special needs” son, created a management plan for the property maintenance, and consolidated over ten separate investment and bank accounts.
People think that having a trustee will mean they lose control because they are unaware of the fiduciary relationship options.
Oftentimes, estates are so large or complex that they require a great deal of management expertise, yet the owner does not want to lose control. This common problem can be overcome with an agency or co-trustee agreement. Last year, we assisted a 98-year-old individual to establish (through her attorney) a simple agency agreement. This agreement clearly sets forth our duties and we report directly to the individual. In this instance, the client has extensive wealth, and we worked with her to simplify her banking arrangements, create and implement a plan to reduce investment risk, distributed collectibles to family members, and we review and pay all her bills. Through the agency agreement, she receives professional management and retains complete control.
Trusts with complex assets need professional management.
In 2015, we were brought into a situation where two trusts held extensive real estate in northeastern Washington including forest land, timberland, pastureland, and Indian reservation land. The liquid assets of the trusts were fast diminishing and insufficient to support the beneficiary — a widow in a nursing home. The problems were:
- That a grandson was named as the trustee, and;
- No management plan was in place to manage the extensive real estate or to liquidate parcels to cover the on-going medical and nursing costs of the widow.
Without intervention and the appointment of a professional, she could have been forced into a much less desirable and less competent facility. This was compounded by the fact that there were about a dozen heirs -- all with fractional interests in each parcel of land. The grandson was removed; we were named as trustee; we sold a home to generate a cash reserve; and we obtained a written agreement among the heirs for an equitable property disposition after the widow passed away. A good trustee needs expertise to create cash flow budgets, manage real estate, and communicate with all required parties throughout the process.
As these stories show, the “common” solution of naming a family member or a friend can turn out to be a costly solution. In sharing these experiences, our goal is for you or your clients to:
- Avoid loss of income (or principal) due to mismanagement of assets;
- Avert legal expenses required to solve mistakes made by family or friends:
- Circumvent conflict within the family;
- Prevent unnecessary burden on a family member or friend;
- Protect the needs and interests of vulnerable loved ones; and,
- Provide peace of mind.
We are honored to be a solid and trusted resource as you create the best possible fiduciary plans.
Print Date: Spring 2016