Campbell Law Offices
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Oakland, CA 94612-2227
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Fiduciary Duties
Trusts are not ordinary investment accounts, even though sound asset management is central to every trust. The trustee of every trust has legal duties to the trust and to its beneficiaries. The management of a trust involves much more than day-to-day investment supervision, important though that may be. Trusts typically have several beneficiaries, and these beneficiaries often have interests that are adverse to some extent. The trustee has fiduciary obligations to each of the beneficiaries, and satisfying these disparate agendas is one of the core responsibilities of trusteeship.
Some trusts permit invasion of principal, either subject to standard or in the trustee's sole discretion. Some trusts "spray" their income beneficiaries, in amounts determined appropriate by the trustee. Some trusts include accounting flexibility; that is, items that normally might be credited to principal (such as capital gains) may, should the trustee so decide, be applied instead to income. Decisions such as these are essential to the success of the trust plan.
One might expect the job to be time consuming, and one would one would be entirely correct. It's understandable, then, that any individual would hesitate to take on the burden of trusteeship when there is an alternative available.
The ability to say no
A trust is, essentially, a long-term wealth management plan created by the trust's grantor. The plan implements the grantor's values and vision. The trustee promises to implement that plan in a manner consistent with the trust's purposes and instructions.
Does it ever happen that events outstrip the grantor's vision, so that some modifications are needed? Of course. A wide range of developments, from the very good to the very bad, may make the exercise of prudent judgment by the trustee necessary to further the trust's purposes.
Does it ever happen that beneficiaries would like to have the plan modified, because they don't agree fully with the grantor's vision? Yes, that happens as well - perhaps not always in so blunt a fashion as "Grandpa would have wanted me to have a new sports car," but very often beneficiaries don't understand fully the benefits of a trust-based wealth management plan. The trust document should address this possibility. It's provisions must be followed to the letter.
Making your choice
Selecting your trustee will be among the most important decisions that you make, after you've decided that a trust is right for you. Here are some questions that you might put to the potential candidates:
For how many trust have you served as trustee?
What size of trusts have you managed?
How is your trust division staffed?
What happens if my regular trust officer is unavailable?
How will conflicts among beneficiaries be handled?
Can I have a family member serve as a co-trustee?
Where are your offices? Are they close to the beneficiaries?
Tell me about your record keeping systems and statements.
How frequently will I meet with a trust officer?
What do you charge for trusteeship?
What professional credentials does your staff hold?
May we tell you more?
We are well qualified for all the tasks of trusteeship. It is a job that we do every day, with our full attention. We are staffed for it, experienced and always ready to serve.
When you are ready to take the serious step of including a trust in your long-term financial and wealth management plans, please call upon us to learn more about how we may serve you. We look forward to answering all of your questions.
The fiduciary duty CHECKLIST
The American College of Trust and Estate Counsel, a professional organization of lawyers dedicated to improving probate and trust practices, has created "What It Means to Be a Trustee: A Guide for Clients." The Guide notes that the following obligations are imposed upon the trustees of most trusts:
•Duty to administer the trust by its terms.
•Duty of skill and care.
•Duty to give notices.
•Duty to furnish information and to communicate.
•Duty to account.
•Duty not to delegate.
•Duty of loyalty.
•Duty to avoid conflict of interest (applies when a trustee is also a beneficiary).
•Duty to segregate trust property.
•Duty of impartiality.
•Duty to invest.
•Duty to enforce and defend claims.
•Duty of confidentiality.
Although one might have an intuitive understanding of what each of these duties might entail, they can be quite complex in specific cases. Entire legal treatises might be written about any one of these duties, as well as upon their interactions. Every trustee is charged with having this body of legal knowledge at his or her fingertips at all times.
How we are DIFFERENT
There are many important, built-in benefits to choosing a corporate fiduciary, such as us, as your trustee. For example:
•We treat estate and trust administration as a full time job.
•We have facilities and systems for asset management that individuals lack.
•Trust funds in our care are doubly protected, both by internal audits and regulatory oversight by state and federal officials.
•We have unlimited life, while an individual may die, becoming incompetent or just disappear.
•We bring long experience and group judgment to the job of investment management.
•We will treat beneficiaries impartially, and most beneficiaries will appreciate that.
•We can withstand pressure when a wayward beneficiary asks for more from a trust than was intended, while an individual trustee might give in to requests for "more."
Here's the fine print of the new tax law:
In May the Congress passed, and the President signed, legislation that much of the press called a "$70 billion tax cut." However, no one should expect his or her taxes to go down soon. The name of the legislation gives the game away - the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA). Somehow, the delay of an already scheduled tax increase doesn't have quite the same kick as a true tax cut. Still, there are some important items tucked into the new tax law that you should know about.
Short-term AMT relief
Under prior law an additional 15 million middle-class taxpayers were expected to pay the Alternative Minimum Tax in 2006. Although the AMT originally was aimed at those with the highest incomes, the failure to index the AMT exemption, coupled with other tax changes over the years, has persistently expanded the number of taxpayers affected. What's more, the AMT is a terrific revenue raiser, which makes it hard for politicians to give it up.
The new law holds taxpayers, "harmless" on the AMT - your status for that tax most likely will be the same in 2006 as it was in 2005, unless you have significant changes to income or deductions.
Capital gains relief
The special 15% tax rate on qualified dividends and long-term capital gains, scheduled to expire after 2008, will continue through 2010.
Taxpayers who haven't graduated from the 15% rate bracket yet get a 5% tax rate for those dividends and gains. Under prior law that 5% rate was scheduled to drop to 0% in 2008, for one year only, The good news in the fine print is that the drop is preserved and extended, so lower-income taxpayers potentially may have fully tax-free dividends and gains in 2008, 2009 and 2010.
Taxes for teens
Who is likely to be in those low tax brackets and yet have investment assets that have tax consequences? Children who've received stocks or significant gifts of cash, over the years. Under prior law the kids became independent tax payers at age 14; dividends that they received, or long-term capital gains that they realized, would, in most cases, be eligible for the 5% rate.
Not anymore. The "kiddie tax," under which children pay taxes as if the income were included on their parents' tax return, has been extended to include children up to age 18. The change is retroactive to the first of this year. For example, a child who was 15 last year, and exempt from the kiddie tax, will have to pay it this year. As a practical matter, that's a 300% tax rate increase, a boost form 5%-15%.
A longer-range items - Roth conversions
Higher-income taxpayers - those with adjusted gross income above $100,000 (whether single or married) - have been barred from converting their traditional IRAs to Roth IRAs. This has been true even though the conversion is a taxable event, with significant positive effects for the federal fisc in the short term.
The income limit will be scrapped for conversions to Roth IRAs, but the new rule won't take effect until 2010. Those who convert to a Roth IRA during that year will be allowed to recognize the added income over a two-year period. The temptation to convert could be very great, because 2010 is also the last year scheduled for the current low tax brackets, which were implemented back in 2001.
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