Adam Brower is Vice President of the Garden State Trust Company, a very well respected company, especially when it comes to helping my clients serve as trustees for their estate planning needs. He recently mentioned to me about a case that they had experienced. He was kind enough to describe it for us, since I believe it’s a situation that is very common.
I recently sat down with a very nice couple who came into our office to discuss their estate plan. I learned that Mr. W was terminally ill and that they have a need for a corporate trustee. We discussed at length their children, grandchildren and their plan upon the death of the husband. Mrs. W explained that the relationship between her two children had deteriorated over time, that neither was fiscally responsible and her overriding concern was how to provide for them and her grandchildren when she died.
We discussed many possible solutions; however there was one topic that still hadn’t been broached and it was a plan if they were unable to handle their own affairs should she fall ill. As it happens so often, we are so focused on caring for our loved ones that we forget about taking care of ourselves. This started the conversation about a Power of Attorney and a need for a Standby Living Trust.
First let’s start with what a living trust is and the role of a trustee. A living trust is a binding legal contract that establishes a relationship in which one person or entity (the trustee) holds title to property not ownership, subject to an obligation to keep or use the property for the benefit of another. A trust can be effective today; unlike a will, which is simply a statement of your wishes and is only effective at death. The trustee of a trust has a legal duty to follow your trust agreement and act in a prudent manner, at all times, for your benefit.
A Standby Trust is a revocable trust that sits dormant but is ready to come to life should the grantor (creator) of the trust become unable to handle their financial affairs. In some instances, the grantor, on their own accord, may decide the time is right to activate the Standby Trust and have the chosen trustee manage their affairs. For example, the individual could be at an advanced age and decides they are no longer willing or able to manage personal finances. For this couple, a Standby Trust would prove to be a valuable part of their estate plan. It would provide both Mr. & Mrs. W with peace of mind that a plan is in place for the future. Since the plan was carefully crafted while they are both competent and should a life changing event occur their wishes will be carried out by the trustee. It is important to remember that until an event occurs they remain completely in control of their assets.
As we continued our conservation I asked Mrs. W, “Would you feel comfortable if your children were handling all of your personal finances today?” She responded that of course she loves her children but in no way does she feel they are suited for that type of responsibility. I explained that with a Corporate Trustee in the plan they would avoid the potential pitfalls of having fiscally irresponsible children managing their affairs. A qualified Corporate Trustee will be able to manage the assets, pay bills on their behalf, and carry out their wishes as provided in the trust agreement. While they remain competent changes to the trust or revoking the trust completely remain an option should circumstances change.
We also touched on the importance of having a Power of Attorney prepared. The Power of Attorney is a document that appoints an individual to act in your place during your lifetime. A “durable” Power of Attorney is recommended as it will allow the individual chosen to act in your place even if you should become mentally incapacitated. A Medical Power of Attorney is another key document that will allow the individual you appoint to make health care decisions on your behalf. In the case of Mr. and Mrs. W. upon the incapacity of the survivor I would recommend that the corporate trustee serve as POA of the finances with a direction to fund their Standby Trust. The children could serve as POA of the person.
The Standby Trust and Power of Attorney documents are something I always recommend to our clients as part of their estate plan. It is important to impress upon clients that estate plans are not just about planning for children and grandchildren but also planning for yourself for the future.
Assistant Vice President and Wealth Management Advisor
Garden State Trust Company