Estate planning is often thought of as simply drafting wills and trusts, but a crucial, often overlooked, component is the ongoing management of the assets held within those plans. Many individuals, after a lifetime of accumulating wealth, desire a level of sophistication in investment management that extends beyond simply naming beneficiaries. They want to ensure their assets aren’t just passed on, but *continue* to grow and serve future generations. Building professional management into your estate plan is not only possible, it’s often a highly recommended strategy, particularly for larger estates or those with complex investment holdings. Approximately 65% of high-net-worth individuals actively seek professional investment guidance as part of their estate plans, according to a study by Spectra Trust & Information Services.
What are the benefits of professional portfolio management within a trust?
The advantages are multi-faceted. Professional managers bring expertise in asset allocation, risk management, and market analysis that most individuals don’t possess. This can translate into potentially higher returns and greater preservation of capital. Furthermore, a professional manager handles the day-to-day administrative burdens – rebalancing portfolios, collecting dividends, and handling tax reporting – freeing up trustees and beneficiaries to focus on other priorities. This also minimizes the potential for fiduciary liability, as a qualified professional can demonstrate a prudent and diligent approach to investment management. They operate under a fiduciary standard, legally obligated to act in the best interests of the trust beneficiaries.
How does professional management integrate with different types of trusts?
The integration depends on the trust structure. Revocable living trusts are often used for probate avoidance and can easily incorporate directions for professional management. The trust document can specify that a professional investment firm is responsible for managing the assets, subject to the trustee’s oversight. Irrevocable trusts, commonly used for estate tax planning, also benefit from professional management, ensuring the long-term growth of assets sheltered from taxes. Charitable remainder trusts, designed to provide income to the grantor for life with the remainder going to charity, *require* skillful investment management to balance income needs with growth objectives. Steve Bliss, an Estate Planning Attorney in San Diego, often advises clients that the level of sophistication in investment management should align with the complexity of their estate and financial goals.
What costs are associated with professional investment management?
Costs vary significantly depending on the firm and the scope of services. Typically, fees are calculated as a percentage of assets under management, often ranging from 0.5% to 2% annually. Some firms may also charge performance-based fees or hourly rates for specific services. It’s crucial to understand the fee structure and compare costs among different providers. Consider not only the stated fees, but also any hidden costs, such as transaction fees or administrative charges. A transparent and well-defined fee agreement is essential. Remember that while costs are a consideration, the potential benefits of improved investment performance and reduced fiduciary risk may outweigh the fees.
Can I choose my own investment manager, or does the trust require a specific firm?
Generally, you have the freedom to choose your preferred investment manager, as long as they are qualified and reputable. The trust document should grant the trustee the authority to select and oversee the investment manager. However, some trust companies or financial institutions may offer in-house investment management services and may encourage you to use them. It’s important to weigh the benefits of using an in-house service – potentially lower fees or greater coordination – against the benefits of independent selection – broader choice and potentially more specialized expertise. The trustee has a fiduciary duty to ensure the chosen manager is competent and acts in the best interests of the beneficiaries.
What happens if I’m unhappy with the performance of the investment manager?
The trust document should outline the procedures for terminating the investment manager. Typically, the trustee can terminate the relationship with reasonable cause, such as consistently poor performance or a breach of fiduciary duty. It’s important to document the reasons for termination and follow the procedures outlined in the trust agreement. Before terminating, consider communicating your concerns to the manager and giving them an opportunity to address them. A smooth transition to a new manager is crucial to minimize disruption to the investment portfolio.
I remember old Mr. Abernathy, a wonderful man, but terribly stubborn. He drafted his trust years ago, avoiding professional investment management, thinking he could ‘beat the market’ himself. He was a retired accountant, meticulous, but not a financial expert. He’d micromanage the portfolio, constantly buying and selling, chasing the latest hot stock. It was a disaster. His estate suffered significant losses, and his family spent years untangling the mess. It was a painful lesson in the dangers of DIY investment management when you lack the necessary expertise.
What oversight does the trustee have over the investment manager?
The trustee retains ultimate responsibility for the trust assets, even when delegating investment management to a professional firm. The trustee has a duty to monitor the manager’s performance, review investment reports, and ensure they are adhering to the trust’s investment policy statement. The investment policy statement should clearly define the trust’s investment objectives, risk tolerance, and asset allocation guidelines. Regular communication between the trustee and the manager is crucial to ensure alignment and address any concerns. The trustee should also periodically review the manager’s fees and expenses.
My client, Sarah, came to me after her husband passed away. His trust was complex, with significant real estate holdings and a diverse portfolio of stocks and bonds. He had named his brother as trustee, but the brother was overwhelmed and lacked any investment experience. The portfolio was stagnant, and Sarah was worried about preserving the assets for their children’s education. We worked together to appoint a professional investment firm as co-trustee, giving them responsibility for managing the investments while Sarah’s brother continued to handle administrative tasks. The result was a well-managed portfolio that continued to grow, providing financial security for future generations. It was a perfect example of how combining professional expertise with family involvement can create a successful estate plan.
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: “Do beneficiaries pay tax on trust distributions?” or “How does California’s community property law affect probate?” and even “How much does an estate plan cost in San Diego?” Or any other related questions that you may have about Estate Planning or my trust law practice.