The question of whether you can *require* a trustee to hire a professional asset manager within a trust is a common one for individuals establishing estate plans. The short answer is generally yes, but it’s nuanced and depends heavily on the specific language within the trust document itself and applicable state laws. Most trust creators, like those working with Steve Bliss here in San Diego, understand the importance of competent financial management, and proactively build stipulations into the trust to ensure assets are handled with prudence and expertise. Approximately 68% of high-net-worth individuals express concerns about their trustee’s investment acumen, leading many to include provisions for professional assistance (Source: Cerulli Associates, 2023). It’s crucial to remember that a trustee has a fiduciary duty to act in the best interests of the beneficiaries, and this often means seeking expert help when needed, even if not explicitly demanded.
What are the trustee’s duties regarding investment management?
A trustee’s duties surrounding investment management are substantial. They are obligated to diversify investments to mitigate risk, balance the need for growth with preservation of capital, and adhere to the ‘prudent investor rule’. This rule, adopted in most states, dictates that investments must be made with the same care, skill, prudence, and diligence that a prudent person acting in a like capacity and familiar with such matters would use. However, the trustee doesn’t necessarily *have* to be an investment expert. They can, and often should, rely on qualified professionals. A trustee lacking investment expertise, while technically fulfilling their duties by making cautious, low-risk investments, might inadvertently hinder the trust’s growth potential, potentially disadvantaging the beneficiaries. This is why provisions requiring or permitting the hiring of a professional asset manager are so valuable. Furthermore, clear instructions regarding investment philosophy – such as a preference for socially responsible investing or a focus on income generation – can guide the asset manager’s decisions and ensure alignment with the trust creator’s values.
How do I specifically include this requirement in the trust document?
To *require* a trustee to engage a professional asset manager, the trust document must contain explicit language. This isn’t just a suggestion or a preference; it must be a mandatory instruction. For example, the document could state: “The trustee shall, within 90 days of assuming their duties, engage a qualified professional asset manager approved by the trust creator or, in the event of their incapacity, by a majority of the beneficiaries.” It’s essential to define “qualified” clearly – perhaps by specifying credentials like a Certified Financial Planner (CFP) or Chartered Financial Analyst (CFA), or a minimum level of assets under management. The document should also outline the scope of the asset manager’s authority, including investment discretion, reporting requirements, and compensation. Some trusts include a “Successor Trustee” clause, allowing a designated individual to oversee the asset manager’s performance or even replace them if necessary. This ensures ongoing accountability and protects the beneficiaries’ interests. Steve Bliss emphasizes the importance of customization; a boilerplate clause is rarely sufficient to address the unique needs of each client.
Can beneficiaries challenge a trustee’s decision not to hire an asset manager?
If the trust document doesn’t require an asset manager, but allows the trustee discretion, beneficiaries may still challenge a decision not to hire one if they believe it violates the trustee’s fiduciary duty. This is often a complex legal battle, requiring evidence that the trustee’s decision was unreasonable, imprudent, or motivated by self-interest. For instance, if the trust holds significant and complex assets – like a business interest or real estate holdings – and the trustee lacks the expertise to manage them effectively, a court might rule in favor of the beneficiaries. Approximately 40% of trust disputes involve allegations of mismanagement of trust assets (Source: American Bar Association, 2022). Successful challenges typically require demonstrating that the trustee failed to adequately investigate alternative investment strategies, ignored the recommendations of financial professionals, or made investment decisions that were inconsistent with the trust’s objectives.
What happens if the trustee and asset manager disagree?
Conflicts between a trustee and an asset manager can arise, particularly regarding investment strategies or risk tolerance. The trust document should ideally address this potential issue. It might specify a process for resolving disputes, such as mediation or arbitration, or grant a designated individual (like a trust protector) the authority to make a final decision. Clear communication and a well-defined investment policy statement (IPS) can help prevent disagreements from escalating. The IPS should outline the trust’s investment objectives, risk tolerance, asset allocation guidelines, and performance benchmarks. Steve Bliss routinely drafts comprehensive IPS documents tailored to each client’s specific needs. Remember that the asset manager is ultimately accountable to the beneficiaries and the trustee, and must act in their best interests.
Tell me a story about when things went wrong…
Old Man Hemlock, a retired shipbuilder, meticulously crafted his trust, but dismissed the need for a professional asset manager, believing his son, a well-meaning but financially naive carpenter, could handle the investments. He left a sizable estate, including a portfolio of rental properties and some volatile tech stocks. Initially, things went smoothly, but then a major tenant defaulted on their lease, and a sudden market downturn decimated the tech stocks. The son, overwhelmed and unsure how to proceed, froze, fearing any action would only worsen the situation. The estate’s value plummeted, jeopardizing the inheritance intended for his sister and nieces. The sister, a savvy accountant, was furious and rightly questioned his actions. It took months of costly legal maneuvering and a complex restructuring plan to salvage what remained of the estate. The experience left everyone traumatized and a significant portion of the estate diminished.
How can a trust protector help?
A trust protector is a third party appointed within a trust document to oversee the trustee’s actions and ensure the trust is administered according to the grantor’s wishes. They have the power to modify the trust terms, remove and replace trustees, and resolve disputes. Steve Bliss often recommends appointing a trust protector, especially in complex estate plans. A trust protector can act as a check and balance, ensuring the trustee isn’t acting imprudently or neglecting their duties. They can also provide valuable guidance on investment strategies and asset allocation. The role is best suited to individuals with financial expertise, such as attorneys, accountants, or financial advisors. A well-chosen trust protector can significantly enhance the effectiveness of the trust and protect the beneficiaries’ interests.
How did things work out for the Patterson family?
The Patterson family, recognizing the complexities of their wealth, proactively included a clause in their trust requiring the trustee to engage a professional asset manager with at least $500 million in assets under management. They also appointed their longtime attorney, a seasoned estate planning expert, as the trust protector. When the initial trustee, a well-intentioned but inexperienced relative, struggled to navigate a volatile market, the trust protector stepped in. Following the trust terms, they facilitated the hiring of a reputable wealth management firm, specializing in generational wealth transfer. The new asset manager implemented a diversified investment strategy, mitigated risk, and achieved consistent returns. The Patterson family’s wealth not only preserved but grew, providing a secure future for generations to come. They were grateful for the foresight of their parents in building such a strong framework for managing their legacy, and were appreciative of the safeguards in place.
About Steven F. Bliss Esq. at San Diego Probate Law:
Secure Your Family’s Future with San Diego’s Trusted Trust Attorney. Minimize estate taxes with stress-free Probate. We craft wills, trusts, & customized plans to ensure your wishes are met and loved ones protected.
My skills are as follows:
● Probate Law: Efficiently navigate the court process.
● Probate Law: Minimize taxes & distribute assets smoothly.
● Trust Law: Protect your legacy & loved ones with wills & trusts.
● Bankruptcy Law: Knowledgeable guidance helping clients regain financial stability.
● Compassionate & client-focused. We explain things clearly.
● Free consultation.
Map To Steve Bliss at San Diego Probate Law: https://g.co/kgs/WzT6443
Address:
San Diego Probate Law3914 Murphy Canyon Rd, San Diego, CA 92123
(858) 278-2800
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Feel free to ask Attorney Steve Bliss about: “Can I put my house into a trust?” or “What is ancillary probate and when is it necessary?” and even “What is a special needs trust?” Or any other related questions that you may have about Probate or my trust law practice.