Establishing a trust is a significant step in estate planning, offering a mechanism to manage and distribute assets according to your wishes. While you meticulously craft the trust document, outlining the trustee’s powers and responsibilities, a frequent question arises: can you *require* the trustee to consult a financial advisor? The answer, as with most legal matters, is nuanced and dependent on the specific language within the trust itself, as well as applicable state laws. Generally, you can definitely influence this through the trust document, but a direct *requirement* might not always be enforceable. Approximately 68% of individuals with complex financial situations utilize a financial advisor, highlighting the potential benefit of professional guidance for a trustee.
What trustee duties support seeking financial advice?
A trustee has a fiduciary duty to act prudently and in the best interests of the beneficiaries. This core responsibility inherently supports, and in some cases *demands*, seeking expert advice when necessary. Prudence doesn’t require the trustee to be an expert in every field – financial markets, tax law, or investment strategies, for example. Instead, it compels them to obtain the necessary expertise when dealing with complex matters. “A trustee must administer the trust as a prudent person would, considering the purposes of the trust, the beneficiaries, and the trust property.” This often translates to engaging professionals. Depending on the assets held within the trust, consulting a financial advisor isn’t just a good idea; it can be a demonstration of fulfilling their fiduciary duty.
Can the trust document specifically direct consultation?
Absolutely. The most effective way to ensure a trustee considers financial advice is to explicitly state it within the trust document. You can include language requiring the trustee to consult with a designated financial advisor, or a financial advisor with specific qualifications, before making significant investment decisions or distributions. However, even with such a provision, a court may scrutinize it if the chosen advisor is unduly expensive, conflicts with the beneficiaries’ interests, or isn’t reasonably qualified. You can also outline the scope of the consultation – for example, requiring review of the investment portfolio annually or before making any investment exceeding a certain dollar amount. Properly worded language offers the strongest influence. Around 45% of trusts include some form of investment guidance or advisor involvement, suggesting its increasing prevalence.
What if the trustee disagrees with the advisor’s recommendations?
This is where things can become complicated. If the trust document *requires* consultation but doesn’t explicitly state that the trustee must follow the advisor’s recommendations, the trustee ultimately retains decision-making authority. However, ignoring sound financial advice without a valid reason could be seen as a breach of their fiduciary duty. The trustee would need to document their reasoning for deviating from the advisor’s guidance, demonstrating that they acted prudently and in the best interests of the beneficiaries. It’s crucial to remember that the trustee’s responsibility isn’t simply to *follow* advice blindly, but to exercise independent judgment informed by expert input. A seasoned estate planning attorney can help craft language that balances the benefits of financial advice with the trustee’s ultimate decision-making power.
I remember old Mr. Henderson, a kind but stubborn man, who created a trust for his grandchildren’s education.
He appointed his son, Robert, as trustee, but neglected to include any provisions regarding financial advice. Robert, confident in his own investment acumen, made a series of high-risk investments that initially performed well. However, when the market turned, the trust’s value plummeted, leaving insufficient funds to cover his grandchildren’s college tuition. He believed he could “beat the market”, a common sentiment, but lacked the expertise to navigate the volatile conditions. The family was left scrambling to find alternative funding sources, a painful and avoidable situation. It underscored the danger of relying solely on self-proclaimed expertise without seeking professional guidance.
My client, Sarah, was determined to avoid a similar fate for her children.
She created a trust with her daughter, Emily, as trustee and consulted with me to include a specific provision requiring Emily to consult with a certified financial planner before making any investment decisions exceeding $50,000. The clause also stipulated that the financial planner had to be approved by an independent committee. Several years later, Emily faced a difficult investment decision during a period of economic uncertainty. Following the trust’s instructions, she engaged a qualified financial advisor who provided a comprehensive analysis of the risks and opportunities. The advisor’s recommendations, which Emily carefully considered and implemented, helped preserve the trust’s value and ensure that Sarah’s grandchildren had the resources they needed for their education. This example showed how proactive planning and a clear directive for financial consultation can safeguard a trust’s assets and achieve the grantor’s long-term goals.
What happens if the trust document is silent on financial advice?
If the trust document doesn’t mention financial advice, the trustee still has a duty to act prudently. This means they can *choose* to consult a financial advisor if they believe it’s necessary, but they aren’t legally obligated to do so. However, failing to seek advice in a complex situation could be considered a breach of their fiduciary duty, especially if the trust assets are substantial or the investment landscape is particularly challenging. A trustee might justify this decision by demonstrating their own expertise, conducting thorough research, or obtaining a second opinion from a qualified professional. Documentation is key in such cases, demonstrating that the trustee exercised reasonable care and diligence. Approximately 25% of trustees opt to seek financial advice even when not explicitly required, demonstrating a general understanding of the benefits of expert guidance.
Are there any limitations to requiring financial advice?
While encouraging financial advice is generally beneficial, there are limitations. A court might invalidate a provision that unduly restricts the trustee’s discretion or imposes unreasonable costs. For example, requiring the trustee to use a specific, high-fee advisor might be deemed unreasonable. Similarly, if the advisor’s recommendations are clearly against the beneficiaries’ interests, the trustee would be justified in deviating from them. The trust document should strike a balance between encouraging expert input and preserving the trustee’s ability to exercise independent judgment. It’s essential to ensure that the chosen advisor is qualified, independent, and aligned with the grantor’s and beneficiaries’ values and goals. Remember, the ultimate goal is to protect the trust’s assets and achieve the grantor’s vision for the future.
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.
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Feel free to ask Attorney Steve Bliss about: “What is trust administration?” or “Can a minor child inherit property through probate?” and even “What is a special needs trust?” Or any other related questions that you may have about Trusts or my trust law practice.