INDUSTRY INSIGHT
WEALTH MANAGEMENT
SPONSORED CONTENT
TRUSTS AND
TRUSTEES
Provided by RBC Wealth Management and Eric A. Gregory, CFP ®
After actor Philip Seymour Hoffman died, court documents revealed that he didn’ t want his children to become“ trust fund kids.” Rather than establishing a trust, he chose to leave his fortune to his girlfriend who is the children’ s mother.
The decision to create a trust is a personal one. But, beyond the potential of creating unmotivated children, a trust can be a smart fiscal choice and a way to ensure that the legacy you built during your life continues after your death.
n WHAT IS A TRUST?
A trust is a legal entity authorized by law. There are two basic categories: a living or inter vivos trust is created during your lifetime, and a testamentary trust is established after death.
The terms of a trust are many and limited only by your imagination. But, some of the most common reasons to establish a trust are to:
• Dictate specific terms and conditions for the distribution of your wealth
• Plan ahead and ease the burden for loved ones after your death
• Avoid probate
• Reduce estate taxes that could take a significant bite from your financial legacy
• Allow for easier management of cash needs and assets if you become disabled
• Establish continuity of asset management at death
• Support a philanthropic cause
n THE BASICS A grantor is the person who establishes and transfers property into the trust. He / she can also be called a settler or donor. A beneficiary is the person or entity that receives the benefits of the trust. A trustee has an important role. This is the person who manages and administers the trust. He / she holds a legal, but not a beneficial, title to the trust assets and has power over the disposition of the trust property in accordance with the trust agreement.
n ROLE OF A TRUSTEE
Having a professional trustee is not a legal requirement. But it can be an enormous advantage to those who do not have the time or expertise to successfully manage their own trust. Professional trustees can be used in many different ways and serve many different purposes. But the main responsibility is to give clients peace of mind and excellent service in the management of their trusts.
A trustee acts as a fiduciary for the trust. The role of trustee comes with a multitude of responsibilities. Therefore, trustees should be highly organized, oriented toward serving others, and have a solid understanding of financial basics.
A trustee’ s main duty is to exercise reasonable care, skill and judgment for the trust. This means he / she must treat beneficiaries the same, without favoring one over the other unless the trust specifies it. This also means
investing the trust assets in a conservative manner that will result in reasonable growth with minimum risk unless the trust allows for a less conservative approach.
Trustees cannot use trust assets for their own benefit unless the trust authorizes it. Trust assets must be kept separate from a trustee’ s personal assets, with separate checking and investment accounts. Accurate records must be kept, tax returns filed and reports sent to beneficiaries as the trust requires.
Failure to act as a fiduciary exposes the trustee to a lawsuit from the beneficiaries if they feel the trust was mishandled or they were wronged in some way.
n WORK WITH A PROFESSIONAL
A financial professional can help determine what kind of trust is right for your situation. You may also want to consider a professional trustee if you don’ t want to burden a family member with the responsibilities and issues that arise from this role.
You worked hard to build your wealth and legacy. A trust and responsible trustee will help to protect both after your death.
This Industry Insight was written by Eric A. Gregory, CFP ®.
This article is provided by Eric A. Gregory, CFP ®, a Financial Advisor at RBC Wealth Management in the Southpointe office. The information included in this article is not intended to be used as the primary basis for making investment decisions. RBC Wealth Management does not endorse this organization or publication. Consult your investment professional for additional information and guidance.
Trust services are provided by third parties. Neither RBC Wealth Management nor its Financial Advisors are able to serve as trustee. RBC Wealth Management does not provide tax or legal advice. All decisions regarding the tax or legal implications of your investments should be made in connection with your independent tax or legal advisor.
RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE / FINRA / SIPC( 07 / 14)
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