- Forms, Rates & Tables
- Continuing Professional Education
- Determination Letter
- Email Chief Counsel Advice
- Exempt Organizations Update
- Field Service Advice
- Forms and Instructions
- General Counsel Memoranda
- IRS Announcements
- IRS Fact Sheet
- IRS Forms
- IRS Legal Memoranda
- IRS Notices
- Information Release
- Internal Revenue Code
- Letter Rulings
- Revenue Procedures
- Revenue Rulings
- Technical Advice Memoranda
- Treasury Decisions
- Income Tax
- Transfer Taxes
- Case Studies
- Technical Reports
Field Testing the Family Trust - Case Study: Sister Fiduciaries
Before buying a car, any informed buyer, even though he may be a very experienced driver, will insist on a test drive. Trusts are a different story. Even though they may be many times more valuable than a car in economic terms, they just land in our laps or fall on our heads and responsibility for matters we know little about confront us. Read this case study to realize the benefits of a long test drive.
By Dan Felix
There's a compelling case for field testing a family trust.
A trust is technical construction that's meant to carry a family through disability and death. The maiden voyage of the trust occurs over the emotional swells of this particularly tough time. And the launch will likely go more smoothly if the key participants test the trust before then, while life is calmer and the trust creator is still available to tweak the document.
I've already shared with you the WHY and the HOW of field testing. See respectively my posts on Field Testing Your Trust: Try it Out While There's Time to Adjust it! and How to Field Test Your Trust.
So here's a case study on one field test. The sisters had previously agreed to serve as co-trustees; however, during the role playing of the field test, they discovered there were fiduciary functions they were not willing to perform! The trust document was changed accordingly - and so, is much more likely to perform well when the time comes.
Before: The trust creator is a divorced father of two adult children. Established a half dozen years before, his trust provides for his exclusive benefit while alive, and after death, to his children, to several named charities and to a few other specific beneficiaries. He named his out-of-town sisters as disability and post-mortem trustees. He reported that back around the signing of his trust, he share copies of the trust with them and discussing with them their roles in depth.
The motivation: The trust creator wanted to see how the trust would work, including that his sisters were up for the various jobs.
The field test: The simulation took place at a singe meeting Present were: the trust creator, the two sisters, and the estate planner/trust protector and myself. We started with a translation of the technical functions of the trust through simple English and charts. We then advanced into role-play, experiential exercises and simulations. It soon became clear that the sisters were proficient and comfortable in dealing with distributions, but were not proficient and not comfortable in the other trust functions. Also evident was less of a need for trust protector.
The result: The trust creator is in the process of reconfiguring his trust. He intends to keep his sisters as distribution trustees, but replacing them with a professional trustee as to the other trustee functions.
The trust creator also modified the trust protector’s duties. The protector may replace the distribution trustees, but only if both should pre-decease their brother. In the event of specified malfeasance of which he has notice, he may terminate their services. The trust protector will have replacement power and a similar limited monitoring responsibility for the professional trustee, including fee approval.
The trust creator was re-assured by the process. A repeat simulation is planned with the new fiduciary, with a view towards a later session to include the beneficiaries.
Comment: The field test exposed what prior discussions hadn’t: that the sister trustees were ill-suited and uncomfortable with some likely future tasks, and that all concerned would be better served with those tasks being assumed by another.
The process of tightening the trust protector’s role also enhanced his relationship with the sisters, improving the foundation for their likely future working relationship.
How much better for all concerned to be able to improve the trust now!