A trustee is required to maintain detailed records on the trust’s business, keep track of deadlines, maintain accounting reports and stay on top of and comply with ever-changing laws. That’s all on top of his or her responsibility to keep the various beneficiaries informed as to the trust’s status. Finally, the trustee isn’t allowed to complete these tasks in the way they deem best, but must follow rules laid out in the document itself and abide by numerous, occasionally conflicting, legal duties. All in all, it’s a heavy weight to lay on someone and may represent too much of a time commitment for a trusted family member or friend.
Life can change in an instant.
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Make sure your estate plan says what you think it says
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Ensure that your trust is properly funded
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Verify beneficiary designations
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Provide your successor agent with all the vital, useful, and heartfelt information they will need to effectively carry out your plan.
Reasons to Use a Professional Fiduciary
You want to mitigate legal risks (and fees).
A fiduciary can be faced with many forms of liability, including liabilities to third parties, contractual liabilities, liabilities in tort, and liabilities as a titleholder (e.g. shareholder or owner of land). But perhaps one of the biggest concerns to fiduciaries is potential liability stemming from beneficiaries. If any of the beneficiaries disagree with how the trustee is managing the trust, they may personally sue your trustee–even if the trustee has followed the advice of an attorney, financial advisor, or other qualified professional. While you may perceive that there is a low risk of a family member or friend acting as your fiduciary getting sued, you must not ignore the possibility. Acting as a fiduciary essentially puts that person in control of someone else’s property or inheritance where they can easily become the focus of others’ suspicion, frustration, or anger. The penalties for breaching a duty include having to pay for any resulting damage to the trust (or estate) out of their own pocket. Mistakes can be costly, particularly to your estate or fiduciary.
You want to prevent relationship breakdown and family conflict.
When children or siblings are appointed to bear the fiduciary burden, subjective interpersonal relationships may get in the way of decision-making that requires clear thinking and objectivity. Often unresolved familial emotional issues (“Mom always loved you best”) and lingering grief issues interfere with proper, timely, and necessary trust management. In addition, serving as trustee requires a unique skill set. It takes a specialist, especially when it comes to making discretionary decisions about how and when beneficiaries receive trust assets, ensuring that tax and legal obligations are met and to ensure that the specifications spelled out in the trust are followed. Family members often engage in stress tactics that increase the difficulty in reaching these goals.
As unlikely as it might seem in your personal situation, conflicts are far more likely to occur when a family member is appointed as trustee or agent. Whether other family members feel the wrong person is in charge or unforeseen conflicts of interest arise down the road, family trustees have a way of creating division among loved ones.
You would like to reduce the burden on a family member or friend.
The role of fiduciary, such as a successor trustee, executor, or agent, involves considerable time expended in shepherding of assets; searching for and tracking down lost information; preparation of financial analyses and spreadsheets; tax reporting; management of financial, debt related, creditor and other business entities; evaluating, repairing and making decisions concerning real and personal property; and managing communications and expectations of beneficiaries. It requires accurate record keeping of all transactions, regular accounting reports, careful attention to critical deadlines, and dedication to following all new changes in regulatory requirements. Plus, the trustee must represent the trust in all legal proceedings, should they arise.
Needless to say, these legal duties and responsibilities take time and acumen you may not want to burden a family member or friend with, or time and acumen that person might not have or be willing to devote. A non-family trustee—such as a professional fiduciary—on the other hand, is well-equipped to handle all of these tasks.
Expertise, objectivity and availability is important to you.
Because professional fiduciaries manage trusts on a daily basis, they are familiar with all kinds of trusts, tax and estate planning strategies, and the legal responsibilities of a fiduciary. They have the knowledge and experience to successfully navigate an evolving legal system and appropriately manage and serve you over an extended period of time, during your lifetime and after.
Since family trustees typically have to rely on the expertise of numerous professionals to carry out their fiduciary responsibilities, it often makes more sense to appoint someone who already has that expertise from the start.
Additionally, unlike banks, financial advisors, or corporate trustees (who profit from fee income derived from assets invested), professional fiduciaries are completely independent, usually earn set hourly fees and therefore are free from conflicts of interest.
Professional fiduciaries understand the mechanics of trust administration and are able to work quickly and efficiently through the processes needing to be accomplished.
Our Process
When you are a Santa Barbara Fiduciary client, you will experience a level of service and personal attention that is hard to find elsewhere. Our team will take the time to get to know you, your life, and your family — the financial intricacies as well as the personal dynamics — and work in partnership with you to achieve your goals. With more than ten years experience, we’re able to offer you the best solutions and implementation for your situation.
Contact Us!
Let us know you are interested by contacting us by phone, email, or the web. We will follow-up to make sure that our office is the best fit for your fiduciary needs and to schedule your Initial Consultation.
Initial Consultation
During our Initial Consultation, we will get to know each other and review your current circumstances, unique needs and goals. If we’re a good fit and you want to work with us, we will enter in to a formal engagement and often jump into gathering data.
Client Homework
You’ll complete a comprehensive questionnaire that ensures we capture complete and pertinent information to your individual circumstances, planning, intent, and wishes. You’ll also provide us with a copy of the draft estate planning documents you intend to appoint us in.
We do the rest!
(Well, almost.) We’ll review your existing and/or proposed estate planning documents, asset ownership and other estate planning-related matters, facilitate follow-up communications as needed, and establish your internal file.
Plan Maintenance
Once the initial scope of work is completed, you’ll keep SBF and your planning up-to-date via periodic follow-ups, at least every three to five years. (Ask us about our discounted Client Maintenance Program!)
Common Estate Planning Pitfalls
(And How To Avoid Them)
Not planning at all.
No one wants to spend more time than necessary contemplating their mortality. Some avoid it at all costs and pass away without any kind of estate plan in place. Others choose not to establish a will or trust because they worry about the financial costs, or they don’t want to decide which friend or family member gets which asset or responsibility. But putting in the work now will save your loved ones from months or even years of arguments and legal hassles.
Not having a real plan in place.
You might not have a “real plan” if your plan was poorly designed for your situation with little thought behind its development. If you don’t have a trust in place, state succession laws and the probate process will help determine where your assets go. Do you really want your estate and end of life care determined by state laws and the court system?
Solution: Be proactive and meet with a qualified estate planner, financial planner, and professional fiduciary to set up an end-of-life and estate plan .
Not updating plans over time.
Estate planning isn’t a “set it and forget it” matter. Simply having a plan isn’t enough. Estate plans need to be updated after major life events, when your goals shift, or when public policy changes. For example, if you move to a new state, you need to review your estate plan. Legal instrument wills, trusts, and powers of attorney are state law driven documents, and moving can cause issues. If a new family member is born or someone dies, beneficiary designations might need modifications. And changes at the state or federal government level (e.g., the Tax Cut and Jobs Act passed in late 2017) can severely impact estate planning.
Solution: Revisit your estate plan any time you (or the government) experience a big life change.
Completing your estate planning on your own.
Many people feel that they can save money by using how-to guides or fill-in-the-blank services on the internet. But your situation is unique and requires a carefully devised strategy. Your estate planning team should include a qualified estate planning attorney, financial advisor, and professional fiduciary. An experienced team will help you create a foolproof estate plan with no details overlooked.
Failure to fund revocable trusts.
Many estates include a revocable trust, also known as a living trust. Assets owned by the trusts avoid probate and help with disability planning and some other issues. They generally aren’t created to save taxes.
The problem in many estates is the owners skip a step. The trust is created after the attorney prepares the trust agreement and all the interested parties sign it. After that, the trust has to be funded. That means legal title to assets has to be transferred to the trust.
For some assets that’s easy. Household and personal effects are transferred to the trust with simple language in the trust or a schedule of assets attached to the trust agreement. But other assets require more. For real estate, the deed has to be changed to reflect that the trust now is the owner. Automobile registrations have to be changed. For financial accounts, you have to change the name of record with the custodian. That might mean applying to open a new account and transferring the old account assets to the new account.
None of these steps is difficult or expensive, but many people neglect to do them. The result is they wasted money paying for the trust documents. Their assets won’t avoid probate, and they won’t reap the other expected benefits of the trusts. Be sure you are clear with your planner about any actions you need to take to ensure the plan is fully implemented and maintained.
Improper ownership of assets.
End of life planning can expose oversights surrounding asset ownership. The first mistake people make is not owning property jointly as spouses. On specific occasions, spouses may want to keep property separate. But when they own property together, it creates creditor protections and efficiencies in transferring property upon the first spouse’s death.
Improper ownership of assets could also be where a business owner accidentally titles business property in their own name, or when retirement accounts are put into a trust when the goal is keep them outside the trust. Other times, people think they’re outsmarting the system by deeding real estate property to their children or selling property for $1. These transactions are actually treated as completed gifts, potentially creating a gift tax liability or at least a requirement to file a gift tax return form to the IRS. Taking asset ownership too lightly or improperly executing it can cause problems when it pertains to estate and end of life planning.
Solution: Figure out what your assets are and understand how they fit into your estate plan.
Not updating asset ownership.
You might own some assets in your own name and others in joint title with your spouse, an adult child, or someone else. Some assets might be in trusts, limited partnerships, or other vehicles. Like the beneficiary designations, these need to be reviewed. Does the arrangement still meet your needs? Has something changed in your situation, the law, or something else that makes different ownership better? The Tax Cuts and Jobs Act made significant changes in income and estate taxes. Many people should review their plans to see if their current plans are obsolete or add unnecessary costs and complexity.
Outdated beneficiary designations.
There are numerous cases and rulings involving this one, and it seems every estate planner has at least one horror story. Remember what your trust or will says may not affect who inherits certain assets. These assets have separate beneficiary designation forms, and that determines who inherits. These assets include retirement accounts, annuities, and life insurance.
Failure to update beneficiary designations means an asset might go to your parents or siblings, because that’s what you put on the form years ago when you first opened the account. Sometimes the asset goes to an ex-spouse, the estate of a deceased person, or other unintended beneficiaries. Other times someone is inadvertently excluded, because they were born or married into the family after you completed the form.
Solution: Review your beneficiary designations every couple of years and after every major life change in your family.
Insufficient health care directives/drafting.
Under the Health Insurance Portability and Accountability Act, every individual’s medical records and other personal health information is confidential, meaning it cannot be shared with anyone, including family members, without written authorization. Lack of this information and specific directives could impede decision-making by others when you’re incapacitated or approaching the end of your life.
Solution: Check and update your family’s health care powers of attorney, living wills, and advanced health care directives.
