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Inheritance guidance important to prevent misuse of funds

by | Mar 1, 2013 | Trust Administration |

Setting up a trust allows a person to retain a great deal of control over the transfer of assets to designated heirs. When setting up trusts, however, it’s important that the trust maker provide some direction for how the assets will be administered. Unless an overseer for the trust is arranged, those charged with maintenance of the assets may behave in such a way as to maximize their own earnings while depleting the trust assets.

Orlando residents with large estates often spend significant amounts of time planning the transition of their assets to their heirs. This is usually done through gifts, the creation of wills and the establishment of trusts. But without proper management, the estate may be gutted by excess trading, fees and administrative costs determined by the institution charged with managing the funds.

To avoid this, the estate creator can appoint a directed trustee over the estate. This trustee administers the estate without managing the funds. This removes a primary conflict of interest that may tempt a managing company into operating the estate in such a way as to profit the managers rather than the estate.

The directed trustee ensures that the managers work toward maintaining the assets or growing them at a reasonable level of risk. To aid in this, an estate planner can couch the terms of the estate in language that restricts the way in which the trustee can direct estate management, for example, by restricting risk levels, enforcing diversification within trust portfolios and even placing restrictions on what sort of assets the trusts can hold.

Estate planning should extend beyond the immediate need to preserve an inheritance. It should look toward continuing the preservation of the estate’s assets after the transfer is complete. Orlando residents can do this by exercising their right to designate a directed trustee over the estate, as well as by providing strict instructions to be followed in the administration of that estate by the trustee.

Source: US News & World Report, “Don’t Leave an Inheritance to Your Wealth Adviser,” Daniel Solin, Feb. 14, 2013