Choosing a Trustee for Your Trust

If your estate plan includes one or more trusts, you will need to decide who should be named as trustee(s). Trusts are legally binding contracts, so the individual(s) or company named is legally obligated to carry out your wishes as specified in the trust agreement.

The biggest decision is often whether to name individuals (family members or close friends, typically) or to name a professional fiduciary, such as a trust company or trust department of a bank.

There are pros and cons to each approach, however more often than not, individual people are named as trustees rather than corporate entities.

One reason trust settlors (people creating trusts) name individuals instead of professionals has to do with perceived expense of administering the trust(s). Where corporate trustees are compensated for their services, that is often not the case for individual trustees. Individual trustees will very often have a stake in the success of the trust instead.

Another factor to consider is the experience level of your trustee(s). Most individuals serving as trustee don’t have experience serving in that type of role and often may need to hire professional help at some point during the trust administration.

Another potential downside to naming individuals as trustee is that putting one family member in the role of trustee could unintentionally put them in conflict with the beneficiaries; if one child is named as trustee to manage funds left in trust for her siblings, this can put her in an awkward situation of having to determine what is best for the beneficiary.

There are downsides to naming corporate trustees, too. In addition to the cost, corporations may act more conservatively than you would prefer. By their nature, they are also impersonal and the beneficiaries will likely not be dealing with the same person for the life of the trust.

Whatever you choose, it is important to name at least one successor/alternate trustee, in case the first named person or company is unable or unwilling to serve as your trustee. You also have the option of naming co-trustees; two or more trustees empowered to act on your behalf.

The trustee will serve an important fiduciary role for you, so it is important that you approach the decision thoughtfully. Contact us for more information, and to find out how we can help you with your estate planning.

Having A Business Owners Buy Sell Agreement is Critical For Estate Planning

Having business owners buy-sell agreement is critical for estate planning. When creating an estate plan, it is critical to review all areas of your personal and business life. If you are a co-owner of a business having a buy-sell agreement is important. Change is inevitable and protecting your estate is a top priority. A buy-sell agreement is a legally binding instrument that companies use to determine how ownership will change hands. It also establishes a reasonable valuation for the business and clearly specifies what happens when a trigger event occurs.

Buy-sell agreements:

  • Provide a market for the business interests in the event an owner dies or leaves the company.
  • Provide the guideline for the transfer of an owner’s shares to a third-party usually subject to a right of first refusal of the other owners.
  • Establish the price and terms, so the transactions under the buy-sell agreement occur in an orderly fashion.
  • Ensures that financing, life insurance or cash is available to acquire shares when trigger events occur.

Trigger events include the owner quits, retires, dies, divorces or becomes disabled. Other triggers are bankruptcy, disqualification, dilution of ownership, non-compete provision and many more. It is critical to work with a qualified professional to think about potential trigger events and their implications.

Types of Buy-Sell Agreements

The four primary types of buy-sell agreements are:

  • Those with fixed prices; Set by consent of the owners and determined by unanimous agreement.
  • Those with formulas; A predetermined formula establishes the price.
  • Shotgun agreements; The initiating party sets the price, the other party buys or sells at that price.
  • Valuation process; Price of future transactions determined by a valuation process.

Having a buy-sell agreement requires recurring appraisals which are a legitimate business expense. The appraisals establish a basis for ongoing personal and corporate planning. There is no doubt about what the buy-sell agreement price is at any point in time. There is no question regarding the business value used for financial statement purposes. There is great value in this ongoing knowledge about the worth of a successful business.

The business environment is always changing; the needs of the business owners evolve and change over time. Also, the condition and needs of companies change as well.  Be prepared for change with a great estate plan. Contact us to see how Ford + Bergner LLP can benefit you and your business.

Estate Planning: More than Just Wills and Trusts

Estate planning is generally associated with wills and trusts. While they are certainly key elements of any estate plan, the estate planning process encompasses much more than wills and trusts. In this blog post, we will highlight two other considerations that should be factored into the planning process:

  1. Non-probate assets are assets that, unless specifically incorporated, pass outside of wills and trusts. Non-probate assets include life insurance policies, retirement accounts, accounts owned as joint tenants with rights of survivorship, and any other asset which one or more named beneficiaries have been designated to inherit at death (such as a pay on death (POD) designation for a bank account, or a transfer on death (TOD) designation for certain investments.) It is important to review beneficiary designations for non-probate assets periodically, and to update them as needed. One common mistake is to create a trust for minor children as part of the estate planning process, but to name the minor children directly as the beneficiaries of a life insurance policy or retirement account. By doing so, any assets paid out by contract to named beneficiaries will not flow through the trust you created, so you may be unwittingly circumventing your own wishes for distribution, timing and control of the assets.
  2. In addition to planning for how, and to whom, your assets will pass when you die, your estate plan should also include your wishes for what will happen if you are incapacitated and unable to either manage your own financial affairs or to speak for yourself for medical care. By preparing a durable power of attorney for financial transactions, a medical power of attorney and a living will, you will be taking an important step toward easing any potential burden for your loved ones as a result of your incapacity.

Estate planning can be difficult to talk about, but taking the time to plan for your own death or incapacity is a tremendous gift to your loved ones. Contact us for more information.