Posts Tagged ‘trustee’
Written by Lee McCullough
Friday, 18 June 2010 01:22
96 Comments
Friday, 18 June 2010 01:22
96 Comments
In the recent case, Miller v. Kresser, 2010 Fla. App Lexis 6152 (Fla. 4th DCA 2010), a Florida Appeals court overturned the ruling of a lower court which allowed a creditor to reach the assets of a trust.
The lower court allowed the creditor to reach the assets of the trust because the beneficiary exerted significant control over the trust, the trustee was related to the beneficiary, and the trustee basically failed to perform the administrative duties expected of a trustee. The appeals court overturned that ruling and upheld the asset protection provided by the trust despite the fact that the trustee was not fulfilling his duties.
Lessons learned from this case:
1. Courts continue to uphold the asset protection provided by a spendthrift trust, even in cases where the operation of the trust is imperfect.
2. You can improve your chances of protecting trust assets by appointing an independent professional as the trustee instead of appointing a family member.
3. If you must appoint a family member as a trustee, appoint an independent professional as a co-trustee in order to add legitimacy to the trust.
4. A trustee who does very little administration and allows the beneficiary too much control over the trust will jeopardize the asset protection provided by the trust. The trustee should keep books and records, participate in regular meetings, make investment decisions, sign tax returns, and take part in the administration of the trust.
5. Distribution of income and principal should not be mandatory at any time, but should be left to the unfettered discretion of the trustee.
6. The trust should be located in a jurisdiction that supports the asset protection provided by an irrevocable spendthrift trust.
Written by Lee McCullough
Wednesday, 24 February 2010 01:32
918 Comments
Wednesday, 24 February 2010 01:32
918 Comments
If you are choosing a trustee for a dynasty trust, an asset protection trust, or a trust used to establish residency in a certain jurisdiction, then you better pick a corporate trustee or a professional trustee. Even if they don't provide a lot of services, their fees are justified by their credibility if the trust is attacked, by their independent approval of related party transactions, and by the cost of their malpractice insurance. The IRS and the courts have busted many a trust by proving that the trustee was a straw man and the trust was a sham. (See Sparkman v. Commissioner, 509 F. 3d 1149 (C.A. 9, Dec. 10, 2007)).
If you are selecting a trustee to administer your family living trust, the analysis is different. You have the option of picking a family member, friend, CPA, or a professional trustee. I usually recommend a professional trustee because they are qualified, experienced, capable, unbiased, and they have the time and energy to get the work done. But most people ignore my advice and appoint a family member who has no qualifications, no experience, no independence, no time, and no desire to serve in that capacity. Most people pick a family member in order to save money, failing to factor in the cost of probate litigation, restraining orders, and strategic warfare among their heirs when the estate is administered by a family member.
Being chosen as an executor or trustee is a lot like being asked to referee a church basketball game. You have little to gain, and no matter how hard you try, you will probably be disliked, accused of being unfair and incompetent, and you will probably find yourself in the middle of a melee. I have personally played in a game that involved six technical fouls, two ejections, and a chipped tooth. The referees were atrocious, but, most importantly, we won the game.
These are some factors to consider in selecting a trustee:
- Someone who is honest and trustworthy. If they have deep pockets, you have greater assurance they won't steal or your money and leave you without recourse.
- Someone who is qualified and capable. It helps if they have accounting skills, investment experience, and some business savvy.
- Someone who is organized, responsible, and capable of decent record keeping.
- Someone who is fair, unbiased, and a good communicator.
- Someone in your geographic vicinity.