Legacy Planning

A Generational Wealth Transfer Survival Guide

Four Insights For Choosing, Or Agreeing To Be, A Trustee

The greatest transfer of wealth in history is happening right now, according to a study from the Boston College Center on Wealth and Philanthropy.

A staggering amount – $59 trillion – is projected to be passed down to heirs, charities and taxes between 2007 and 2061.

“We are in the middle of a massive, unprecedented wealth transfer from the World War II generation to the Baby Boomers, and then to subsequent generations,” says family wealth advisor John Pankauski, author of the new book, Pankauski's Trustee's Guide: 10 Steps to Family Trustee Excellence.

 “But much of that wealth will not be given to beneficiaries outright.”

 

A trust is not a personal ATM

Instead, he says, it will be held in a trust, which is a distinct entity, much like a corporation. The trust is managed by a trustee, who protects the trust property for the benefit of the beneficiaries. Sounds good – as long as trustees are honest individuals who don’t use the trust as a personal ATM, and simmering rivalries among beneficiaries don’t explode, Pankauski says.

“Some trusts will be competently managed,” he says. “Others will be abused in a number of ways the creator of the trust had not intended.”

The best way to ensure money is handled correctly – and honestly – is to pick the right trustee, but the right one may not be obvious, he says. Pankauski, founder of the Pankauski Law Firm (www.pankauskilawfirm.com), offers perspective on how to choose a trustee.

• Don’t choose just anyone
Family members, friends and even felons theoretically could be entrusted with managing an inheritor’s money. But tread carefully. “Your hard-earned money could be fought over, misspent or squandered if you leave inheritances in a haphazard way or choose a trustee who handles the trust improperly,” Pankauski says. A family member often is chosen, but he warns that can lead to ill will among relatives. The decision on the trustee should be treated like a business consideration, not a personal one.

• Multiple trustees are allowed, but can cause problems
Personal relationships that were previously cordial can turn icy when there are multiple trustees. Co-trustees administer the trust by majority rule unless the trust document demands unanimous decisions. A common problem Pankauski sees is when there are two co-trustees who don’t get along, but must agree on everything. It may make sense to have a third co-trustee, such as an impartial trust attorney or bank or trust company, to serve as the tiebreaker. Pankauski also offers perspective on whether to be a trustee.

Sounds good – as long as trustees are honest individuals who don’t use the trust as a personal ATM, and simmering rivalries among beneficiaries don’t explode

• I am trusted, but should I be a trustee?
Being a trustee is a great responsibility. Perfection is not required, but incompetence won’t be tolerated, Pankauski says. Criticisms could flow freely. If you’re holding a lot of cash and the markets go up, beneficiaries complain that you failed to capture those gains. If you’re fully invested in the market and the market takes a dip, the beneficiaries complain that you are overexposed. If one of six beneficiaries requests funds for a minor child’s education, the other five will want a similar distribution—regardless of need. You may be fairly compensated for your duties as trustee, but the money may not be worth the potential headaches.

• You don’t have to accept the appointment
You can decline to serve. Merely sign a one-page document, which can be as brief as a sentence, stating you decline. No reason is required. Deliver your statement, and a copy of the trust, including all original documents you have, to the beneficiaries and the successor trustee named in the trust document. If no successor trustee is named, you should notify the beneficiaries in writing that you decline to serve and they should retain counsel to protect their interests.

You can agree to serve and later resign. But doing so raises a host of issues, Pankauski says. You can’t just ditch your duties. You are still in charge until there is a smooth transition to a successor. Regardless of whether you plan to create a trust, or you have been appointed trustee of one, you will want to seek legal counsel, Pankauski says.

“The laws that govern the management of a trust vary from state to state and evolve over time,” he says. “The right guidance is essential.”

 

 

About John Pankauski
Mr. Pankauski, the grandson of Polish and Lithuanian immigrants, was deeply influenced by his parents – products of the Depression and World War II who imparted their values of hard work and thrift. He studied political science at the University of Massachusetts at Amherst. He attended Suffolk University Law School in Boston, and later obtained a master’s degree in law from the University of Miami School of Law’s Graduate Program in estate planning.
He founded the Pankauski Law Firm PLLC, (www.pankauskilawfirm.com), to create a boutique firm of highly talented professionals that restricts its practice to administration and litigation of family wealth and disputes involving wills, trusts, and estates. In addition to trying cases and handling appeals, the firm defends trustees and advises beneficiaries on their rights related to inheritances, power of attorneys, contested guardianships, investments, and family business interests.