Beneficiary or Trustee

When going over your estate plan, it’s easy to get lost in the jargon.  This occurred to me recently during a meeting with a client, Patricia, who was upset that one of her sons was not listed in her documents as a successor trustee.

I was befuddled since this very same client told me how irresponsible this son was. In fact, I distinctly remembered the client saying that she didn’t want this son to have any control over the client’s bank or brokerage accounts. So I first confirmed with her that we were talking about the same person.

“Well, yes,” Patricia answered, “I don’t want him to control any of my money, at least while I’m alive.”

“So why are you upset that he is not going to serve as your trustee?” I asked.

“Because I still want to treat all my children equally!”

This is where I explain that being a trustee is not an honor, nor does it bestow any more of a beneficial interest on the person acting as trustee. Instead, acting as a trustee is a job. It is laden with a lot of responsibility.

Whomever serves as your successor trustee must have the ability to interact with your financial advisors to determine what your asset mix should consist of. In fact, your trustee is held to the prudent investor standard under Florida law.  Violating that standard could lead to a lawsuit where the other beneficiaries of the trust recover damages against the trustee.

If stocks or bonds need to be sold in order to have cash to pay for in-home nursing care or other convalescent care expenses, your trustee is the one who makes decisions which assets should be sold to do that. If you need to move out of your home for care, then the family member that you have named as your trustee will have to decide whether to continue to have your finances continue to carry the expenses associated with owning the home or whether it would be prudent to sell it.

These are not easy decisions.

Your trustee will file your tax returns. He or she will interact with your CPA as well as your attorney when deciding legal matters associated with your estate. When you die, your trustee will have a fiduciary duty to your creditors, taxing authorities and the other beneficiaries. If your trustee violates these fiduciary duties then he or she can be held liable, and have to pay an attorney out of their own pocket to defend the claims or to satisfy any judgments if they are deemed to have acted negligently.

Just because someone is a trustee does not mean that the amount that they are entitled to as a beneficiary will change. If Cynthia is a 25% beneficiary of the estate, she does not receive any additional beneficial interest when acting as the trustee.

Cynthia may get reimbursed for her out of pocket expenses associated with fulfilling her trustee duties, such as air fare, car rental, hotel expenses, overnight express charges and the like. She will also be entitled to take a trustee’s fee for her time. The fee that she takes is usually well earned, and is taxed as ordinary income much like a CPA’s or attorney’s fees would be taxed to them as ordinary income.

Many family members graciously perform their duties without taking a fee. More often than not, his or her siblings will not appreciate it and expect the child you have selected to act as trustee to do it all for free even though the duties can be enormously burdensome.

It is therefore vitally important when naming a trustee that you select someone who will devote the requisite time and attention to these important matters, and will be comfortable interacting with your professionals. Someone who is confident, diligent and detail oriented makes for a fine trustee. They don’t necessarily have to have any background in law, accounting or taxes. So long as they know how to interact with your team of professionals, it usually works out fine.

As you can see, it really isn’t a matter of being fair to one child or another. I would go so far as to say that not only have you not bestowed an honor upon the family member that you select as your trustee, rather you have handed them a job. A big job, at that.

So don’t worry about being equal. Select the family member who is the most likely to do the job right.

To make sure you’ve selected the proper trustee, visit www.estateprograms.com/selectingyourtrustee for a complimentary copy of my book on the matter.

© 2019 Craig R. Hersch. Originally published in the Sanibel Island Sun.

Cognitive Decline and Estate Planning

According to a recent Texas Tech University study, fifty years of age is the apparent peak for financial decision making. This ability begins to decline at age 60 and is significantly impacted by age 80. Even more worrisome is that people’s perceptions of their own abilities do not decline.

How should this information affect families when constructing their financial and estate plans?

Anecdotally, many of my retiree clients who are into their seventies and eighties have not shared, nor intend to share, their financial and estate information with their adult children. There are a number of reasons why they don’t share, but in not sharing family members usually aren’t aware of financial dangers arising due to cognitive decline.

A 2015 New Jersey case is enlightening. In Margaret Lucca v. Wells Fargo Bank, N.A. the bank was sued for failing to report to a state protective services agency a problem when one of the bank customers lost hundreds of thousands of dollars in a wire scam. Scammers from Jamaica called Margaret Lucca, fraudulently convincing her to wire money over several occasions.

Bank personnel noticed the unusual wire transactions, reporting them to the bank’s internal fraud department. The internal fraud department never reported the transfers to law enforcement agencies or to the New Jersey state adult protective services agency.

The heirs of Mrs. Lucca sought to hold Wells Fargo responsible for having failed to report these transactions under a New Jersey statute. That law permits financial institutions to report suspicious financial transactions to state agencies.

The New Jersey court held that the statute was enacted to protect financial institutions from claims that it violated a customer’s right of financial privacy, but did not mandate the reporting.

Therefore, while Wells Fargo could have reported the transaction, it was not liable for failing to report the transaction. While the holding in this case seems to be a logical if not obvious reading of the statute, the implications of the case and matters discussed in the opinion may have far greater import to the future of estate planning.

Mrs. Lucca’s estate plan was less than optimal. Consider if Mrs. Lucca had her estate attorney created a revocable living trust, and transferred the accounts into the trust, naming Wells Fargo as trustee. Wells Fargo would consequently serve in a fiduciary capacity for Mrs. Lucca, rather than as simply a custodian of the account.

In a fiduciary role, Wells Fargo would have been held to a higher standard. Had it not reported the fraud upon discovery, it’s likely that Wells Fargo would have been held liable to Mrs. Lucca for the losses.

More important than being liable, had Wells Fargo been acting as a trustee, it would likely have more closely monitored the suspicious financial transactions. A trustee would notice a wire transfer of such amounts to Jamaica

Perhaps another step was warranted as well. As clients age, hiring a care manager as an integral part of the planning process may serve to avert potential elder abuse.  Hiring a care manager isn’t common today, but I believe will become more common as baby boomers age and retire.

A care manager may have identified the vulnerability of the client and alerted an institutional trustee, family member or others to take action. Care managers, unlike all the other members who comprise a traditional estate planning team for elderly clients, are mandated reporters. They must report suspected abuse. The same statute that absolved Wells Fargo of liability mandates that care managers and certain other categories of persons must report suspected abuse.

Had Mrs. Lucca’s team of advisors recommended a care manager, perhaps the elder abuse would not have arisen. There was no oversight or monitoring of the client’s financial activities.

Appropriate checks and balances are a key to safeguarding aging clients, but in the past have not been viewed as being within the scope of traditional estate planning. The Margaret Lucca case should not be viewed as merely a limitation on the liability of financial institutions, but rather a call to use more robust and comprehensive protective measures for many clients as they age.

© 2019 Craig R. Hersch. Originally published in the Sanibel Island Sun.

A Conversation on Illegal Immigration

In the early 1900s a Jewish family from Kishinev in what is now Moldova, led by a man named Shmuel (anglicized as Samuel) Fogle made a difficult decision to leave everything and everyone they knew and loved to immigrate to America. Some thirty-five years before the Holocaust, brutal pogroms flared across eastern Europe. Jews weren’t allowed to conduct business or vote.  During the Kishinev pogrom of 1903, Russians pillaged the Jewish shtetl, raping dozens and killing 73 souls.

There were so many Jewish families fleeing persecution in eastern Europe that the United States limited the number it would accept. At the time, immigrants who didn’t share the majority’s religious views weren’t viewed as valuable new citizens.

They couldn’t speak English. Many hadn’t attained university diplomas. The Jewish immigrants displaced lower middle-class citizens because they’d perform manual labor on the cheap.  Sound familiar?

The Fogle family could not get visas and were therefore denied entry to the land of liberty, so they made their way across the Atlantic to Canada, who did accept them. Eventually the family snuck across the Vermont border, hiked across the Berkshires and down the Hudson River Valley to the lower east side of Manhattan in New York City, at the time the most densely populated place on earth, where they settled.

It wasn’t uncommon for an entire family (husband, wife and four or more children were the norm) to share one 600 square foot apartment. The streets were dirty and smelly. No one but these grimy immigrants would reside there. Tuberculosis spread rapidly, and if you didn’t speak Yiddish you couldn’t easily navigate the neighborhood.

Over the next one hundred years their progeny became doctors, accountants, businessmen, judges, engineers… and yes, lawyers. Many of whom are now productive, upstanding, taxpaying members of society. In fact, I’m a great-grandson of Sam Fogle. The illegal immigrant.

Richard Viguerie, a conservative political consultant spoke at a conference I attended last week. Over breakfast we discussed many topics, one of which was illegal immigration, which he opposes, and President Trump’s tough stance on immigration, which he favors. When I expressed my sympathies towards today’s immigrants given my family history, he simply stated, “bending to illegal immigration and having wide open borders jeopardizes our sovereignty as a nation so I oppose it. You can’t allow outlaws.”

Explaining his view on why many don’t have a problem voicing opposition to hardline immigration policies, Viguerie quipped, “The left wants open borders because it leads to undocumented Democrats!”  Several others, all with differing views, participated in our breakfast conversation. No one expressed anger, and there was, in my opinion, an interesting, valuable and polite exchange of ideas.

I venture away from my normal estate planning topics today, for which I hope you forgive me, because I don’t believe, even in today’s heated political atmosphere, that we should shy away from political discussions on divisive subjects. I say this with the caveat that everyone show respect for one another, especially to those with differing views. Too often we all live in our own echo chamber, only listening to those with whom we agree. There’s value in listening to the other side.

The American system of government anticipates conflicting ideas. It’s why our country is so great. It’s only when we aren’t willing to respect one another, truly listen and look for common ground seeking compromise that our political system breaks down. Our system is imperfect in that no one usually gets everything that he or she wants. In a heterogenous melting pot society that’s actually a preferred outcome.

I feel fortunate that my ancestors had the guts to leave horrifying conditions to overcome, or even circumnavigate, political obstacles to reach their intended destination. They sacrificed so that their progeny two, three and even four generations removed could lead fruitful, productive and peaceful lives.

At the end of our conversation I asked Viguerie whether he believes we’re heading towards a civil war of sorts. “I believe we’re already in one.” He answered.

I certainly hope not.

© 2019 Craig R. Hersch. Originally published in the Sanibel Island Sun.