Establishing a trust for the long-term care of loved ones is often a vital part of the estate planning process. But who should administer a trust? Who have you chosen to be in charge of the decisions made on behalf of the trust?
When a Trust is Mishandled
Lisa Marie Presley has recently claimed that the wealth left for her in trust by her famous father, Elvis Presley, has been dissipated. Lisa Marie is suing her former business manager, Barry Siegel, for almost the entire loss of her $100 million dollar inheritance.
As well as leaving the world a legendary contribution to popular music culture, Elvis made financial provision for his only daughter, Lisa Marie. When he died in 1977, Lisa Marie was only nine years old. Elvis had arranged for her inheritance to be protected for her in trust, given her age and vulnerability. Following Elvis’ death, the power of the Presley brand had allegedly built a $100 million fortune by the time Lisa Marie took outright ownership at age 25, at which point she established The Elvis Presley Trust to continue the management of her father’s estate.
She is now suing her former business manager for “reckless and negligent mismanagement” including the placing of the trust assets in “risky ventures” and liquidating assets to supplement the trust’s income. The former business manager and his company are counter-suing.
Of course, trust disputes will always arise from time to time. But they don’t have to. It appears that Mr Siegel was not actually a trustee of The Elvis Presley Trust and the US courts will, of course, decide the arguments.
What to Consider When Appointing Trustees
When families seek to protect their wealth through trusts, whether the aim is to benefit young children, individuals who are at risk through poor life choices and circumstances, or those with special needs, there are a number of important considerations.
Choose your trustees carefully
A trustee has a range of duties and responsibilities to carry out in looking after assets for someone else. Someone who can be relied on to act in good faith and exercise sound judgement is essential. A trustee is, of course, entitled to seek advice where necessary.
If you are a trustee – always fulfil your general duty of care
This means acting in the interest of the beneficiary and not your own. You must avoid conflicts of interest and act in accordance with the powers set out in the trust deed.
If you are a trustee – carry out your specific duties correctly
These include ensuring that investments are appropriate and authorised by the terms of the trust’s founding documents.
A trustee can delegate the carrying out of certain administrative functions to professional managers provided that such a course of action would be carried out by a reasonably prudent person in relation to his own affairs. It is possible to delegate management of investments to a specialist, but that must then be supervised. How did the trustees of The Elvis Presley Trust select Mr Siegel then supervise his activities and performance?
Another duty is to balance fairly the interests of the various beneficiaries. It is alleged that The Elvis Presley Trust’s capital was sold to enhance income. Is that the right approach when one person is entitled to income and someone else is entitled to the capital?
Where trustees can exercise discretion in these situations, they must act reasonably when doing so.
Trust Administration is a complex area with many pitfalls for the unwary or inexperienced. The trustee has full control over the assets held by the trust so it is important that they are entirely trustworthy and able to manage all aspects of trust administration. Before you consider naming a friend or relative as your trustee you should remember that this duty is ongoing and complicated, involving specialised financial and legal understanding.
There are several different kinds of trusts available, and it’s often a question of matching your requirements with the right one.
Testamentary discretionary trusts are great estate planning tools because they can offer tax minimisation, asset protection and flexibility. A testamentary discretionary trust is a type of trust created under a will, comes into existence only upon the administration of the deceased estate.
Special Disability Trusts are very helpful for parents and immediate family members to plan for the future care and for the on-going accommodation needs of a person with a severe disability. These trusts do not need to be established under your will.
A Special Disability Trust must have only one principal beneficiary (the person for whom the trust is established) who meets the eligibility criteria.
For more information about trusts, the administration of trusts or establishing a trust, please contact us today. We offer a FREE, 10-minute phone consultation.