BY: DAVID RUSSELL, CFP®, CSA®
Vice President & Trust Officer | (601) 707-0008
David Russell
When it comes to working with clients, professional services providers (CPAs, estate planning attorneys, for example) know that one thing is nearly certain: their clients’ financial goals and objectives will change as they go through different stages of life. It’s especially true in trust and estate planning, where advisors can better help individuals or families by providing a comprehensive suite of financial planning services to meet the current and future needs of their clients and, just as importantly, the needs of trust beneficiaries.
There are several reasons why individuals or families should consider working with a trust company that provides financial planning services to trust beneficiaries. Those include:
1| Financial planning supports the role of a trustee. Beyond the obligatory duties required of a trustee, the trustee who approaches his or her job from a position of care will often be called into three distinct roles:
• As Manager, a trustee oversees the property placed in trust for the beneficiary.
• As Surrogate, a trustee must carry out the intentions of the grantor.
• As Mentor, a trustee often guides the beneficiary towards financial independence.
2| Fiduciary duty may require it. The American Bankers Association outlines eight fiduciary duties that a trustee owes to those under its care. The first and primary duty listed is a duty of loyalty, followed by these seven:
• Duty of administration
• Duty to control and protect the trust
• Duty to keep trust property separate and to maintain adequate records
• Duty of impartiality
• Duty to enforce and defend claims
• Duty to inform and report
• Duty of prudent investment
A duty to provide financial planning is not on this list, nor should it be. However, several financial planning functions could easily be extensions of the duty of loyalty or the duty to inform and report. While providing a current trust statement may suffice for meeting the duty-to-inform requirements of the Uniform Trust Code, for trustees who want to go beyond the minimum requirements and who truly want to build better communication with the beneficiaries they serve, financial planning provides an excellent foundation on which to build it.
3| Trust beneficiaries have the same needs as any financial planning client. The abbreviated list below summarizes several needs expressed by financial planning clients that are also shared by trust beneficiaries.
• Ensuring adequate cash flow throughout life
• Evaluating and addressing risks to financial independence
• Determining the financial impact of major life events
• Minimizing income taxes
• Allocating investment resources to accomplish current and future goal
• Defining a plan for the distribution of accumulated assets at death
Of course, there are also some needs that are unique to trust beneficiaries that can also be addressed through financial planning such as:
• Determining a beneficiary’s current and future standards of living in order to comply with trust distribution provisions
• Reviewing the impact of discretionary distributions on current and remainder beneficiaries
• Preparing the beneficiary for trust terminations
• Analyzing special asset purchases such as residences or businesses
• Understanding how the exercise or non-exercise of Powers of Appointment affect a beneficiary’s estate plan
4| Financial Planning may reduce the risk of fiduciary litigation. Financial planning is an intensely personal process requiring a lot of front-end time discovering a client’s goals, needs, hopes, and fears. This discovery process is ongoing and typically requires the financial planner to document what he or she hears from the client and to develop a relationship based on mutual trust. Anecdotal evidence suggests that a lack of communication is often the root cause of fiduciary litigation, resulting in beneficiaries claiming some breach of fiduciary duty by the trustee. While there are some breaches involving negligence or some intentional malfeasance, in many cases litigation may have been avoided had the trustee and beneficiary had a less vertical and more horizontal relationship of openness and trust.
Trusts have been compared to prearranged marriages where neither the beneficiary nor the trustee had opportunity to court one another before the ceremony. This can lead to the aforementioned vertical relationship where the trustee views its role more as a protector of property from beneficiaries than its role as an advocate for the beneficiaries’ goals and aspirations.
Both roles can co-exist if the trustee works to earn beneficiaries’ trust that the trust’s grantor conveyed merely by documentation. Trustees who treat their beneficiaries as they do financial planning clients will foster mutual respect, open and honest communication, and loyalty, which is what all healthy marriages have in common.
Next Step:
If you are a professional services provider and have a client who could benefit from financial planning or need advice on related wealth management strategies, please contact me or any one of our professionals at 800.375.4646. We are ready to help.
