We recently encountered a situation in which a successful businessman, who had accumulated significant wealth during his career, felt he was a danger to himself, because he was an alcoholic and he had a couple of car crashes while driving drunk. He was afraid he would eventually hurt someone and lose his wealth in a lawsuit, so to protect his estate he wanted to move his assets into an irrevocable trust and sign away his power of attorney.
The businessman also wanted his long-time trusted Certified Public Accountant to oversee implementation of the process, which would ultimately prevent him from writing checks from his own bank account or making decisions about his wealth management.
The CPA volunteered to become the trustee of his client’s irrevocable trust. Is that a good idea? We discussed this on a recent edition of our weekly radio and web broadcast on KDOW 1220 AM, Wealth Management and You with Connie Yi.
Our concern about a family’s CPA becoming a trustee for the client is about whether or not the accountant should take on another important role for the family and deal even more closely with the family members on two sides of their financial equation.
Will the CPA be able to properly meet the responsibilities of both positions, without becoming involved in a conflict of interest?
In some cases, a child becomes the trustee of a parent’s estate, while also being a beneficiary of the estate with siblings or other family members. This is another situation where a conflict of interest can arise, so careful consideration should be given before a beneficiary assumes dual roles of that nature.
Duties of an Estate Trustee
The legal responsibilities of a trustee, for which an appropriate fee can be charged, include:
- Administer the Trust – legal filings, estate inventory, communications with beneficiaries of intentions and actions regarding asset management
- Loyalty to Beneficiaries – manage the trust as a CEO would manage a corporation to maximize profits; failure to do so is a breach of fiduciary duty and responsibility
- Impartiality – remain fair to all beneficiaries regardless of an interest in the trust, a relationship to the deceased, or personal feelings toward an individual beneficiary
- Avoid Conflicts of Interest – remain objective and impartial, especially if the trustee is also a beneficiary or has other business interests or personal relationships with beneficiaries
Trustee is Like a Corporate CEO
The major responsibility of a trustee is to maintain the estate and not lose any of the principle amount of wealth in the trust.
A trustee in California must invest within the established legal guidelines for a prudent investor and can be liable for losses if investments fall outside of the guidelines.
If you have questions or concerns about any of the topics mentioned above and would like a free consultation with Connie Yi, a California estate planning attorney, please contact us. We have four conveniently located offices around the Bay area: San Francisco, San Mateo, San Jose, and Pleasanton.