Family strife when a family member dies is a sad and often tragic thing. Yes, when funds are short, but I want to talk here about when the funds are plenty but the emotions of greed and fear get involved, or pride and even criminal behavior rear their ugly heads. What could a good parent do to help their children avoid these family and financial disasters?
Most people name a family member to be their executor (or successor trustee), often resulting in something between inefficiency and a complete disaster. Some of the conventions are The Eldest Son (who may be totally incompetent in financial matters), The Favorite Daughter (who may scheme to tilt assets to her favor, or even steal family heirlooms), or My Younger Brother who cares for my kids like his own (who has unknown health issues). You have set the stage for family dynamics to change, and not for the better. The friendly uncle now has to say “no” to his nieces and nephews. Siblings can have their normal rivalries, but now have a toxic ingredient (money) added to a recipe that was once good-natured. Family & money often create poison.
A professional fiduciary is a person who manages an estate or trust as their occupation. It is their profession. They are free of the emotional entanglements of family members. They are experts in their field, know what they can manage and what they should delegate, and have education, training, experience, and licensing (in California; see www.fiduciary.ca.gov). Sometimes the ideal mix is to have a family member and a professional fiduciary serve as co-trustees. One person understands the family dynamics, the other understands legal framework, best practices, the words in the trust document, and brings impartiality to the decision.
Is there a cost to a professional fiduciary? Certainly, but compared to what? I compare it to the risks of family discord and incompetence. The fiduciary “cost” brings value; family discord/incompetence costs relationships and potentially huge chunks of money.
Example: Dad was re-married (widowed or divorced) and later dies. His assets go into trust so that his wife receives income for life and the kids get the assets when Step Mom dies. Step Mom probably wants as much freedom (money) as possible for her lifestyle. The kids want to limit what she can take so that they maximize what’s left over. What if Step Mom is the trustee? What if the eldest son is the trustee? What if they are co-trustees? Those are all recipes for strife and conflict. A professional fiduciary might be a good solution.
Let’s talk about the technical expertise and legal responsibilities that the professional fiduciary must possess. Understanding tax implications and the legal environment and financial fundamentals. Abiding by duties of loyalty, identifying goals, prudent delegation, diversification, monitoring the investment advisor, keeping fees low, assessing risks, and accountability to beneficiaries. These are a lot of fancy words, but does your son or daughter possess these skills or recognize these duties?
Historically, if you had a non-family trustee, it was your attorney or CPA—a professional that you’ve worked with for years. For the attorney or CPA, it is often a thankless job. They are generally not professional trustees, rather they are merely appointed by you and feel they have some moral obligation to you.
If your wealth exceeds $10 million, then generational planning with trusts is probably part of your plan. You are Mom & Dad with $1 million-to-$5 million (house, IRAs, securities, everything). If you are Mom and you die first, you probably want your share to be protected for your kids to inherit. (Put another way, what if Dad remarries a floozy?) And if you are Suddenly-Single-Dad (remarried or not) and you lose mental capacity, having a professional fiduciary could prevent a situation where your son and daughter argue about your care, fight over who controls the finances, and sibling rivalry turns into war. Over you. Over your money. One lives in Anaheim (I’m close) and the other in Orlando (I don’t trust you). Most likely, son or daughter won’t like this independent professional messing with “their” money, but my question is, “What is best for you? Best for your family relationships? Most prudent financially?”
I will leave it there, for you to ponder whether identifying a professional fiduciary might be a key ingredient in your estate plan. If this is of interest, give us a call or bring it up during your next appointment so we can discuss your situation.
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