Choosing the Right Trustee for a Lasting Family Legacy

Speaker 1 – 00:00
Create a trust to make sure that the assets that you have created can pass not only to your next generation, but
generations after that.
Speaker 2 – 00:08
We’ve found that in financial planning, a lot of stuff gets talked about, but very little stuff gets done. I think at some
point it was like 3% of trust. Make it three generations. Putting the money in the trust for the beneficiaries rarely
gets carried out. There’s many reasons for that, but today we’re going to really unpack that.
Speaker 3 – 00:24
These types of conversations you’re just not getting with the corporate trustee, they don’t have the knowledge of
the family or the oversight. If you want to put a family member or a sibling, are they ready to handle all that
responsibility?
Speaker 2 – 00:36
We see a lot of trustees kind of give up because like you said, there’s administration, there’s taxes, it gets
complicated. EWA has gone down the path of becoming a trustee for a lot of clients. We’re really trying to fix a
problem that we see as an epidemic out there in financial planning.
Speaker 1 – 00:52
We do think we’re uniquely positioned to see through the goals and objectives of the families.
Speaker 2 – 00:57
Should you have co trustees on this account? And I would say.
Speaker 1 – 01:05
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Trusts are an extremely important component of the ultra high net worth space. And with respect to a trust
document, the most important decision that the grantor of that document needs to make is who’s the trustee. And
the reason for that is you create a trust to make sure that the assets that you have created can pass not only to
your next generation, but generations after that. And statistically we just don’t see that assets actually make it to
the third generation. And there are a lot of reasons why that’s the case. But obviously the selection of a trustee will
ensure that the wishes of the grantor are seen not only through one generation, but generations that follow. And
today in this podcast, we’re going to talk about some of the criteria that grantors should consider when making
that very important decision.
Speaker 2 – 02:00
EWA has gone down the path of becoming a trustee for a lot of clients. And this we had to do through several
careful steps. So, you know, first of all, it’s not normal for an RIA to be able to offer a trustee services because you
need to elect into what’s called fiduciary custody. And what that does is it subjects you. So most reas every rea is
subject to an SEC audit and that can happen every one or two years, typically, which is good. That protects the, you
know, the public, the consumers. If you’re a trustee, you are subjecting yourself to a whole secondary governing
body, which is the PCoab. So basically a CPA firm coming in and auditing, you know, your books. So that governing
body then reports to the SEC if you pass or fail.
Speaker 2 – 02:49
So a lot of firms shy away from that because, you know, of compliance risk. They don’t want to deal with the heavy
cost of that. They don’t want to deal with the a lot of discipline structures and systems and documentation that
have to occur behind the scenes. We’ve made this move despite all those, you know, pains I just described
because we’ve found that in financial planning a lot of stuff gets talked about, but very little stuff gets done. And
the typical reason for that is we see a lot of, you know, high net worth families will have a cpa, they’ll have a
financial advisor, typically a couple, maybe an insurance team, and then also an estate planning team. And these
individuals, you know, especially if it’s one, let’s just say it’s one spouse that’s, you know, quarterbacking.
Speaker 2 – 03:32
All these discussions with all these people, it’s like a game of telephone tag. That person dies, the other spouse
then, you know, passes the kids. There can be a lot of egos, a lot of miscommunication, a lot of disagreements. It
can also be a full time job, just coordinate these different relationships. And so what we found, you know, with
taxes, why we saw taxes, there’s a lot of miscommunication, a lot of time wasted. Same thing for insurance. That’s
why we brought all this in house. But from a trustee perspective, this we’ve kind of seen as an epidemic because
it’s statistically, I think at some point it was like 3% of trusts make it three generations. And I’m not sure what the
exact percentage is today, but it’s very little. And the reason for that is the trustee choice and the wishes of the
grantor.
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Speaker 2 – 04:16
The person, you know, putting the money in the trust for the beneficiaries rarely gets carried out. There’s many
reasons for that. There is miscommunications, there’s egos, there’s, you know, lack of transferring the values to the
kids, etc. But today we’re going to really unpack that. But I just wanted to give a quick background on why we’re
going down this path because we’re really trying to fix a problem that we see as an epidemic out there of financial
planning. So Jimmy, I would say you by far have the most experience with this. You know, having worked at
previous, you know, broker, dealer and you know, partnerships, you’ve had being involved with some of these
conversations in the, you know, nine figure families. You know, so what. Just bring us some perspective and a
couple, you know, stories, if you will, to set the stage.
Speaker 1 – 05:00
Yeah, and I think you explained it very well, Matt. The reason we as a firm made the decision to get into this space
is because we do think we’re uniquely positioned to see through the goals and objectives of the families simply
because we are, you know, through our process, we have a very clear understanding of those goals and objectives.
But when you are a trustee, I think the first thing that you have to recognize is that your responsibility is to the
grantor, the individual who has created that trust. And that can be at the passing of the grantor or very likely can
also be during the lifetime of the grantor.
Speaker 1 – 05:39
And you are just really trying to, as you said, limit the noise that sometimes comes within a significant amount of
money that is passing or is there to help support the lives of the beneficiaries. And what we try and do is make that
process and make that communication and make that decision making easier for everybody. And I’d like to say
that every day is great and that there are no issues, but that is not the case. Sometimes we are dealing with a
special needs situation, which has its own level of detail and characteristics. Sometimes we are dealing with
individuals who spend not responsibly. Sometimes we are dealing with addiction. So there’s a lot of things that go
into the role of the trustee.
Speaker 1 – 06:35
But I think what you really try and find is the balance between who really understands the family dynamic and who
is also able at times to make decisions that might not be the most popular, but is in the best interests. And that’s
what we are trying to thread. And I think we’re positioned very well to do that.
Speaker 2 – 06:55
When you go to select a trustee, most people think, okay, I don’t want to go with a corporate. Corporate trustee.
Maybe fees are too high or they’re not gonna. There’s gonna be some conflicts of interest. So we see a lot of
people naturally go, you know, the attorney, you know, can suggest, can operate this role or a family member. I’d
say family members are most often. So, Ben, can you just give us like a quick breakdown of the different roles?
What’s a grantor? What’s a trustee? What’s a beneficiary? What’s the, you know, a trust protector? Just give us
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some basic definitions to kind of set the stage here.
Speaker 3 – 07:28
Yeah, so the grantor is the Person or entity that’s creating or funding the trust for the benefit of the beneficiary. So
the beneficiary is the one who’s actually receiving benefits from the trust. And then the trustee, which is what we’re
talking about here today, that’s the entity that’s really holding the legal title to the trust assets that responsible for
managing, investing, distributing the assets, all in accordance with the trust document per the grantor’s wishes.
Now, there may potentially be a trust protector added onto the trust. That’s really more of an optional, more
oversight role with certain authorities as well.
Speaker 2 – 08:04
Perfect. Yeah. So a couple, you know, I guess, perspectives that we have from, you know, being in this field for so
long is family members. So family members we’ve seen have been, I would say, more often a disaster than
workout. Now there’s some that worked out great. Right. But just one quick story. So, you know, this. Now this is
one client. There was, you know, basically four. Four siblings. Their father had passed away, but all four siblings
had a different mother who had passed away. So the most of the money was with the father. The father was
remarried and the trust was, you know, called a marital trust, so that the surviving spouse, you know, was older and
was able to take interest only until she passed. And so they selected one of the daughters to be the trustee. There
was about $2 million.
Speaker 2 – 08:59
So whatever the. The new life passed, that the goal was that this $2 million, the principal and the corpus of this
would be available for the four children, even though they split all in their. At the time about in their early 50s. And
so one daughter had. Had become the trustee and was making all decisions. So her job was to pay interest to her
stepmom.
Speaker 3 – 09:23
Right.
Speaker 2 – 09:23
And so the interest on $2 million should be, you know, nor about $80,000 a year. What happened though, was that
stepmom was in major financial trouble. And this trustee was very empathetic and kind of made the call the shot.
And this was right around, you know, 2008. And so the. The account dropped from 2 million to 1.2 million. You
know, and this. So this trustee, having no even college degree, didn’t understand the stock market, didn’t have any
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of her money invest in the stock, pulled it all out, moved it to cash, then realized that her stepmom was on the
verge of bankruptcy, so started raiding the account, not understanding that the mob is only eligible for interest or
raiding the account of principal. She lived about seven years.
Speaker 2 – 10:19
And I know all these details because one of the siblings became our client and asked was this, you know, gave us
the trust documents. I’ve said no, but I mean, technically you’d have to sue your sister, you know, if you, if there.
Cause this was totally mismanaged. But obviously she didn’t have any money to pay anyway. So it was like they
ended up each getting like 70 grand. So 280,000 was left of this $2 million. Now if the money, if the trustee knew
what they were doing and just did the interest and kept the money in a diversified portfolio, you know, 30 months
later, the market would. And by the way, that stepmom should have gotten a lower paycheck when the market went
down to protect them, you know. And so realistically, by the time the market recovered, I did the math.
Speaker 2 – 11:06
Each, each, it was close to a million dollars each that each kid, each beneficiary should have gotten. And instead
they got $70,000. So now the four siblings still talk. You know, there’s some drama. We’re going to work with one of
them. But this is just an example of many of. If you choose a family member that’s not educated and doesn’t
understand. Doesn’t understand the trust document is kind of calling their own shots without whatever think is
best, it can be disastrous.
Speaker 1 – 11:37
Yeah, I mean, there’s a lot to unpack there because you bring up blended families too, which adds a whole nother
layer of, you know, things that need to be considered. I think you come back to what, you know, what does the word
mean? Trustee. There’s gotta be trust. And so when we talk about what are options for trustees, whether it’s a
family member or a corporate trustee, which could be a bank or a formalized trust company, that’s where you.
Again, I come back to the original comment where you try and find that middle ground.
Speaker 1 – 12:10
Because not only does there need to be trust from the grantor that hey, you’re going to see my wishes through, but
there needs to also be some trust with the beneficiaries that when you are actually making a decision that they
don’t quite agree with, there’s that trust factor that they hopefully understand you’re making that decision in my
best interest. If it’s a family member, sometimes that’s just going to be blurred because that’s either a brother or a
sister. And there’s years and years of history that go behind that. And maybe they just don’t feel that that’s the
reason. And then if it’s a bank, maybe the beneficiaries say, well, you don’t really know me. I mean, you’re a large
institution and you know, I don’t think I trust the fact that you really have my best interests at heart.
Speaker 1 – 12:56
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So again, a lot to go into it. But if there’s trust on both sides and you are qualified to make the decisions that you
just mentioned and down markets and all those things, that’s where we see that money actually makes it.
Speaker 2 – 13:11
To that third generation. Yeah. And so there’s so much needed for a trust. So first of all, the trustees, you know,
basically as a couple roles, they have to be a fiduciary to, you know, the document that was written, the wishes of
that grantor, what was their intentions? You know, most high net worth people, they want to help their kids but
sometimes giving them too much access too quickly can ruin them.
Speaker 1 – 13:35
That’s the, that’s the start and that’s.
Speaker 2 – 13:36
The beginning of it. Yeah, there is so much discretion needed. If you’re not in this field, most people think, oh, it’s
going to help them. So much money can ruin you without. It could magnify all your problems instantaneously. So
that’s one issue. And then the second issue is you have to act in the best interest of the beneficiary. And there’s so
much discretion needed because these documents are typically written, you know, interest only until the
beneficiary is maybe 30, 35, 40, and they have access to a third of the principal on those three stages. But there’s a
provision for what’s called HENT, health, education, maintenance support. So if you’re below 30 and there’s a
health concern, if there’s an educational need, if there’s support, which are so broad terms, then the trustee could
make a distribution of principal.
Speaker 2 – 14:24
And if you choose a sibling who’s working full time, who has their own kids, you know, think about, you know, your
life right now, if you’re a listener, how busy you are, if you’re like in a double working house managing this trust and
kind of getting worn down by your nieces or nephews asking for a I need this, I need this new car. It’s a full time
job. We see people just give in and say screw it, you know, take the money.
Speaker 3 – 14:49
And we’re not even matt not to cut you off. We’re not even talking about all the professional administration that
needs done outside of all these distribution requests. Making sure that if there’s a trust tax return trial properly, if
there is, you know, any sort of audit needed or regulatory Oversight, I mean, all these things that if you want to put
a family member or a sibling, you know, are they ready to handle all that responsibility? It’s not just saying yes or no
to distribution requests per the grantor’s wishes. It’s managing. It’s managing.
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Speaker 1 – 15:18
Yeah, that’s a great point. That’s a really good point.
Speaker 2 – 15:21
No question. Yeah. And so the. They can. We can see a lot of trustees kind of give up because like you said, there’s
administration, there’s taxes, it gets complicated, and then there’s the relationship friction between the trustee and
the beneficiaries.
Speaker 1 – 15:35
Man, I’d like touch one thing you just mentioned because you talk about trust with the HEM standards and
everything. What we are also seeing is that a lot of grantors are implementing what we call dynasty trusts, which
actually keep the corpus in trust for generations because they want not only that protection that a trustee can
provide, but they want those assets staying in their family bloodline generation after generation. And that’s when
the selection of a trustee becomes even more important because that needs to maybe outlive some family
members as well. So I mean, there’s a lot of factors that go into this discussion.
Speaker 2 – 16:20
What I’ve seen for a 6A trustee to be successful comes down to really three things. The first thing is does that
person have, you know, a high level of education, understanding how investments work, how taxes work, how the
trust is meant to work, etc. That’s number one. The second one I would say is the ability to have tough
conversations.
Speaker 1 – 16:44
Absolutely.
Speaker 2 – 16:44
And that we find most people shy away from. I say, you know, I have always liked the quote that your life success
will be based on how many tough conversations you’re willing to have. The, the your trust success will be based
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upon the trustees ability to have as many trust tough conversations with the beneficiaries. And then the third thing
really comes down to discretion. I mean there are so many gray areas of if you think about how, you know, blended
family, for example, how many misunderstandings there can be if it’s a marital trust and the second spouse is
living off of interest and then that, you know, there’s competing interest because the beneficiaries or the kids, once
they pass and that can create relationship friction.
Speaker 2 – 17:26
So the trustee needs to have ultimate discretion of not just the money, how the money’s invested, but the
relationship dynamics. So managing, you know, what’s in the best interest of all beneficiaries. And sometimes the
beneficiaries can be, you know, this person until this Person dies and then the kids. And then, look, this kid, you
know, we’re worried about his marriage, so it’s bloodline only. And this kid, we’re happy with the marriage. So it’s.
There has to be so much discretion that goes into this that I would say those three and there’s many other
principles. If I say, where can you know, what are the 20% of things that are going to make up 80% of results of
success? It is those three things.
Speaker 1 – 18:02
So, for example, and a lot of people think trusts are activated at the death of somebody like the grantor. Oftentimes
we are asked to be trustees on trusts that have been established for beneficiaries while the grantor is still living.
And, you know, case in point, yesterday we had to have a meeting with the grantor and his second spouse because
the son of the grantor is having some issues on the spending side. It’s creating a little bit of angst with the
marriage. So, you know, we had a meeting with the grantor and the second spouse got that information. We will
now have a meeting with the son and his wife, and we will have to communicate some budgetary restraints and all
the things that, as the grantor having that conversation with his son might create a lot of heartburn.
Speaker 1 – 18:52
That’s our job to do that now. And I think it’s calming things down a bit and making a situation that could have
really exploded more tenable at this point.
Speaker 3 – 19:03
And so just taking a step back, these types of conversations you’re just not getting with the corporate trustee, they
don’t have the knowledge of the family or the oversight to need it from that standpoint.
Speaker 1 – 19:17
Yeah, Ben. I think more so it just might not be that there’s that trust level with, you know, this particular example.
We’ve worked with this family for 20 years, so there’s just this inherent trust that’s established where I think all
parties know we’re coming from a good place, a corporate trustee, where there’s always turnaround with who’s in
charge of what. I mean, we hear that a lot like, oh, I have a new representative now. I just don’t know necessarily
that they get into the kind of detail that. That, you know, we can maybe get.
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Speaker 2 – 19:52
Into not really solving the problem.
Speaker 1 – 19:55
I think it’s. It’s alleviating the responsibility, but it’s not solving the problem.
Speaker 2 – 20:01
I think the relationship friction, especially like the one you describe of the living one, that’s a living trust for that is,
you know, stuff going to get done right, because typically that corporate trustee, they’re going to meet once a
month and approve, you know, we have like a 24 to 40 hour turnaround philosophy here and you know, an internal
trustee board, we meet every week. So the turnaround time is crucial because if you could choose somebody to be
a trustee just to like literally, you know, approve of distributions or you could choose someone, a trustee that has
that discretion, knows the whole family, knows the relationship dynamics and stuff’s going to get done so much
quicker. And that brings me to should you have co trustees on this account?
Speaker 2 – 20:42
And I would say if you find a good trustee, the person’s probably extremely knowledgeable, which means they’re
extremely busy, their time is worth a lot. And if you have co trustees where you vote for agreement if it’s two or if
it’s three, if it’s a majority vote, you’re going to. Things are going to get so slowed down because getting all those
people on the same page, getting on the schedule is going to be very impossible. I mean typically for something
that they’ve, you know, volunteer to do either on a very low fee basis or on a, you know, if it’s a family member,
sometimes on a free basis. So that’s where, you know, people can get worn down very quickly when they have all
these competing interests in their own life.
Speaker 2 – 21:24
So having, you know, professional trustee that also has an intimate family knowledge and relationships and
discretion, I view is crucial.
Speaker 1 – 21:33
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Yeah, agreed. No doubt.
Speaker 2 – 21:36
Well, so if you’re thinking about establishing a trust, there’s several, you know, decisions you’re gonna have to
make. If you’re doing your estate plan overall, a lot of people get caught up. You know, if you have young kids, it’s
typically if you’re married, it’s okay, if I die, everything goes to you and vice versa and you know, you’re there to take
care of the kids. It’s, it’s the who’s. If we’re both gone, who’s going to take care of everyone? That’s something to
think about. Who’s going to be the trustee? Typically this will be separate from who’s the guardian for kids, who’s
the executor of the, of the estate. So these are all roles. Who’s going to take care of the business to make sure the
money flows in the right way. The, that’s a one time job.
Speaker 2 – 22:20
Typically, you know, it could take three to 12 months, sometimes a couple of years to close out, things are
structured properly, it’ll move pretty quick. You know the guardian would be for your kids if you’re they’re young till
they’re 18 and then the trustee is going to be you know potentially a lifetime decision depending on how the trust is
documented if it’s a GST generation skipping where the goal of that trust is that your kids have this couple million
dollars they earn interest hen standard and then that money passes their grandkids tax free as well so that trustee
role could be a steward over your resources over your intentions really for multi generations and a family member
is going to die whereas a business structure set up correctly will be able to follow along in those generations.
Speaker 2 – 23:02
You know that’s our goal in this offering is to ensure those wishes are carried out multigenerationally not just you
know five years worth of disagreements with your nephew and then the whole thing blows up. Yeah any questions
or any interest please reach out. We’re excited to offer these services and hopefully be a valuable resource for our
clients fit the glaring need out there.
Speaker 1 – 23:22
Absolutely.