Choose the Right Trustee!

When establishing a trust, selecting the right trustee is critical.  Some estate planning documents name an individual to serve in that capacity.  All too often, it’s not the right choice. 

Typically, this person is a family member who works full time and has no experience in trust administration, investment management, taxes, conflict resolution, or other fiduciary matters.  The appointment often creates discord within a family, and the newly-minted trustee soon discovers that a burden, rather than an honor, has been conferred upon him or her. 

So…the creator of the trust might want to consider naming a professional trustee such as a bank or trust company.  Here are a few reasons why: 

Impartiality/Objectivity:  A corporate trustee is a neutral party, therefore not vulnerable to the tugs of emotion and family dynamics.  The end results are better decisions and improved family harmony. 

Expertise:  A corporate trustee is an organization that employs professionals with broad experience and deep knowledge, including but not limited to investment management expertise and a thorough understanding of legal and regulatory requirements. 

Continuity:  A trust may need to exist for many years;  however, individual trustees  age, become ill, die, or move away.  These factors may prevent an individual from properly executing his or her fiduciary duties and responsibilities.  A corporate trustee is more permanent;  therefore, it offers stability and uniformity of service…from one generation to another.  

Team Approach:  Modern trust departments typically employee several trust officers and other support staff.  If your family’s trust officer is ill, on vacation, or out of the office for any other reason, a team of qualified professionals is still available to assist with any need. 

Cost:  Contrary to popular belief, it is generally far more cost effective to use a corporate trustee.  Remember, an individual trustee typically hires multiple professionals to handle investment management, tax preparation, legal advice, and so forth.  The end result is often…much greater expense. 

Think of the trustee choice as a wise and loving decision for your family.  What’s the right choice for your family?


How Much Money Can You Afford to Lose? WRONG QUESTION!!!!

Last week, I met a delightful individual who was understandably distressed by her broker’s remark that she could “afford to lose” a particular sum of money.  In certain respects, it’s predictable that an advisor might make such a remark…many are taught to do so.  In addition, investors often ask themselves, “How much can I afford to lose?” 

However…it’s the WRONG question!  The RIGHT question is this:  How much wealth must I preserve/have in order to reasonably ensure my desired lifestyle and…peace of mind?  

This is the question you must ask yourself…and…it’s the one your advisor must help you work through.  Only after answering this question can someone decide how much money he or she is willing to commit to additional risk. 

Times are tougher than most want to admit!  The global economy is increasingly flirting with recession.  If recession or significantly slower growth become reality, it will be more challenging to obtain desired returns.  Volatility with a downward bias will become more likely than less likely. 

So…how much wealth must I preserve in order to reasonably ensure my desired lifestyle and peace of mind? 

Any other question…is out of the question!    

Estate Planning…for LIFE!

Is your estate plan in order?  Pose that question, and most people answer ‘yes’ or ‘no’ in the context of whether they reviewed (possibly amended) their will or revocable living trust in recent years. 

As Billy Mays might have said, “But wait…there’s more!” 

The ‘more’ part is the lifetime component of the estate planning process.  So…carefully think about the following questions:

  • Will I have enough income to enjoy my retirement?
  • How will a sudden disability affect my income, my cash flow?
  • If I become disabled for the long-term and require the services of a health care professional on a daily basis, how will I pay for it?  Where will I live?  Who will pay?  For how long?
  • Given the current economic and political environment, is my overall investment plan sensible for me and my family? 
  • Have I done everything possible to be tax-smart?
  • Who will manage my finances should I become disabled?  Am I still comfortable with that decision?
  • Who will make important health care decisions on my behalf should I become unable to do so?  Am I still comfortable with that decision? 

Do you have answers to all of these questions?  Are you comfortable with them?   If not, take a few minutes to speak with your wealth manager or estate planning attorney. 

The National Network of Estate planning attorney defines estate planning as follows:  

“I want to control my property while I am alive and well, care for myself and my loved ones if I become disabled, and be able to give what I have to whom I want, the way I want, when I want, and, if I can, I want to save every last tax dollar, attorney fee, and court cost possible.” 

Sounds like a good plan…for LIFE!

Gifting Smartly

Gifting can be a very rewarding activity;  however, it involves much more than simply writing a check.  Here are a few of the basics. 

Annual Exclusion Amount:  For 2011, the maximum annual exclusion amount is $13,000 per person, and the number of recipients is unlimited.  If your spouse “joins” in the gift, the maximum increases to $26,000.  

So…if you have five children, you, as an individual, may make $65,000 worth of annual exclusion gifts that do not trigger the federal gift tax.  That increases to $130,000 if your spouse joins in the gift. 

Lifetime Federal Gift Tax Exclusion Amount: $5 million is the magic number in 2011!  Please note that any portion of the gift tax exclusion you use will reduce, dollar-for-dollar, your federal estate exclusion available at death.  By the way, the maximum federal gift tax rate is 35 percent for 2011.  

Charitable Gifting:  You may want or need to do more than simply writing a check to loved ones or favorite charities.  Consider charitable trusts.  Depending on which type you choose (charitable remainder or charitable lead), they offer the potential benefits of reducing income taxes, reducing or eliminating the federal estate tax, providing income to specified beneficiaries, teaching social responsibility to family members, and transferring wealth to loved ones. 

Other Creative Gifting Techniques:  For some families, a grantor retained annuity trust, also known as a GRAT, works well.  This trust arrangement allows you to pass assets that you believe will increase in value to family members…at “discounted” values.  For other families, a limited liability company (LLC) or family limited partnership can be used to reduce your estate for transfer tax purposes. 

If gifting is on your mind, discuss your estate planning objectives and concerns with your wealth manager as well as your tax and legal advisors. 

Remember…Greater Madison has a wealth of first-rate advisors willing and able to assist!