Nov
30
One of our least favorite things to deal with, other than filing our income tax returns, is to focus on our estate planning documents. Some of us don’t want to consider the family dynamics that must be addressed. Some don’t want to think about leaving loved ones behind. Others don’t want to jinx themselves – fearing that if they execute their estate planning documents maybe somehow that will lead to an early demise. However, the evidence is overwhelmingly clear that not having your affairs in order can lead to a drawn out, more difficult and costly administration for those you leave behind.
An important, and yet difficult, decision to make in your estate planning documents is who to name as the Trustee of any trusts created for your heirs. The Trustee is responsible for carrying out the terms specified by you in the trust document. The Trustee’s role includes managing the trust assets, fielding distribution requests from and providing trust accountings to the trust beneficiaries, and making sure tax returns are filed.
While some people name a trusted friend or family member as the Trustee, others may opt for a bank to serve as a corporate Trustee for this important role. Over the last two decades, more families are using an Administrative Trust Company to serve as their Trustee. Administrative Trust Companies only handle the “back office” Trustee duties such as distribution requests and tax filings, while allowing your family to continue to work with your current wealth management firm to manage your assets and financial planning.
Several factors should be considered when trying to decide between an individual Trustee, a bank, or an Administrative Trust Company:
- Experience/Expertise – Depending on the assets in the trust, the Trustee may need to be proficient in tax, accounting, real estate, closely held businesses, and asset management. Close friends and family members rarely have the experience to manage all the issues and responsibilities involved with overseeing a trust. Whereas a bank or Administrative Trust Company may administer hundreds of trusts. However, it should not be overlooked that a close family member may have personal family knowledge that a corporate Trustee will not.
- Continuity – Individuals could get sick, disabled, or die. If this happens, it may be necessary to go to Court to get a new Trustee put in place. Banks and Administrative Trust Companies on the other hand have been in business for decades, and will have personnel available to perform Trustee duties.
- New Advisors – Naming a bank as a Corporate Trustee often means having to say goodbye to your long time wealth management firm. Banks typically won’t take on the Trustee responsibilities if they aren’t going to also manage the trust assets. Families that prefer to stay with their long time trusted advisory firm may opt for an Administrative Trust Company instead. As discussed above, these firms allow the financial planning and investment management to remain with your wealth management firm. The Administrative Trust Company will only handle the “back office” Trustee duties.
- Availability – Serving as a Trustee can be time consuming and demanding. Will your friend or family member have the time necessary to devote to this new role or will they be too busy with their own affairs to spend adequate time to manage the trust?
- Objectivity – With family members serving in the Trustee role, it is not uncommon for conflicts of interest to arise. A Trustee must be impartial and act in the best interest of all beneficiaries of the trust.
- Family Harmony – Trustees often have to make tough decisions such as, investment selection, or denying a beneficiary distribution request that could strain family relationships.
- Cost – Naturally, a bank with all its experience and knowledge (and overhead!) will generally be more expensive than an individual Trustee. However, individual Trustees often charge a Trustee fee on top of the fees charged by the outside professionals they hire to help administer the trust. The Administrative Trust Company alternative should be considered since the “all-in” fee to the trust is often a less expensive alternative.
Clearly, deciding who to name as the Trustee in your estate planning documents can be a difficult decision. An individual, a bank, or an Administrative Trust Company (or a combination thereof), all bring different benefits to the table to serve your loved ones. Don’t let this challenging issue keep you from executing these important documents. Explore the various alternatives with your trusted advisors.
Nov
4
“And now for something completely different.” – Monty Python
When one has written quarterly commentaries such as these for nearly two decades, there comes a point at which you feel like you are repeating yourself. But then a quarter like this one comes along, and it seems like simply turning the previous commentary inside out would suffice. While it may not be apparent from reading the headlines, or listening to the talking heads on CNBC, the third quarter of 2016 provides an example of why market timing is difficult, and why owning a diversified portfolio is important. It is also an example of why those writing market commentaries cannot simply cut and paste from the previous quarter’s missive.
To demonstrate the Freaky Friday nature of third quarter market performance, we need look no further than the performance of the individual sectors of the U.S. stock market. In the second quarter, the best performing sectors of the U.S. stock market were the Utility and Telecom sectors. In the third quarter, these were the worst performing sectors at -5.9% and -5.6% respectively. In the second quarter, Financial and Technology stocks were the laggards. In the third quarter, these were the best performing sectors, up 4.6% and 12.9% respectively. In the second quarter, U.S. stocks outperformed foreign stocks. In the third quarter, foreign stocks (MSCI EAFE) were up 6.43% and U.S. stocks (S&P 500) were up 3.85%. After starting the year off strongly, Commodities and REITs both declined in the third quarter. U.S. Small Cap stocks were one of the few market segments that did not completely change course; they performed better than U.S. Large Cap stocks in the second quarter, and this outperformance accelerated in the third quarter. With strong returns of 9.04% in the third quarter, the Russell 2000 Index is now up 11.46% year-to-date.
Fixed income markets did not undergo the complete reversal that much of the equity market seemed to experience in the third quarter. However, U.S. fixed income markets behaved in a way that might seem just as puzzling. Despite the continued reluctance of the Federal Reserve to raise short term interest rates, the bond market still experienced a bit of a bearish quarter. Fixed income markets were influenced by the continued flattening of the U.S. Treasury yield curve. Long rates stayed fairly stable, with the 30-year Treasury closing the quarter at 2.32%, up from 2.30% at the beginning of the quarter. At the 10-year point of the curve, rates closed at 1.60%, up from 1.49% on June 30th. And short-term rates rose most of all, with the one-year Treasury closing the quarter at 0.59% after starting the quarter at 0.45%.
As we enter the fourth quarter, the Monty Python quote above seems even more apropos. We will cross the finish line of an election that, to date, has been unlike any other in this writer’s lifetime, with a global interest rate environment still near record setting lows, all while awaiting the next move from central bankers. One thing of which we can be reasonably certain: there will be something interesting to write about next quarter.