Bite-Sized Bits of Knowledge

BBK: Trust Management
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Hi, welcome back to another dose of bite-size Bits of Knowledge, where we give you meaningful information in a short amount of time. Today, we’re talking about trust administration, but particularly we’re going into that third component of trust management. We mentioned that the trustee has an obligation to give certain disclosures, accountings, tax returns, communicate well, transparently, be reasonable, act in good faith. It’s a dance. It’s a relationship, and you want to start off the right way, and you want to make sure you’re not creating a situation that makes people feel uncomfortable or untrustworthy, and they The attorney is involved, and that never ends well. In terms of trust management, the trustee’s job is to make sure the assets are productively managed, they’re prudently managed. There’s a prudent investor rule in Florida. There’s usually one in every state. That means the trustee has to hire professionals to manage the trust in a way that is both reasonable but also conservative. They need to grow the assets, manage the assets. As we’ll talk about in a minute, in the next video, make distributions of income and principal to the beneficiaries pursuant to the trust’s instructions. As we talked about in the beginning, the trustee steps in.

The first thing you got to do is they got to do an inventory of what’s going on. They got to take possession of the assets and the liabilities of the They have to be accepting that responsibility, and they’re going to get started by doing that inventory. They’re going to hire professionals where needed. If there’s a business, they need to get some business counsel. If there’s real estate, they need to get appraisals to get that tax basis at fair market value. Step up, if there’s jewelry, there’s TPP, tangible personal property, they should get the appropriate people to value those assets. In other words, they have to get the right professionals to give slice on pretty much everything that they’re doing so that they can say that they did their due diligence. If the person that’s a trustee is also a CFA or a CFP or a CPA, there’s certain things they can do themselves because they’re qualified. But if not, they have to hire the right professionals. Most people that are trustees are not a Jack of all trades, and even if they are, they should hire professionals. That’s one of the things about doing it right and well that I’d recommend.

I already mentioned you got to manage Use the assets prudently, conservatively. You got to hire professionals to grow it and make sure it’s sufficiently both liquid but also invested. In the discussion in the moment about distributions, you’re going to see why you’re going to want liquidity. As a matter of just saying it again, don’t invest in Bitcoin. Don’t invest in things that are super risky. Early-stage ventures really should be avoided unless the trust, specifically, The trustee says that that’s what it wants the trustee to do. I want to make a point here to just give you another example of where trusts go wrong, which I think I talked about in another video is trustee compensation. The trustees have a job. It is a job. They’re going to deal with beneficiaries, deal with hiring all these professionals, working with lawyers, working with CPAs, doing accountings, do their tax returns. It’s a job. For that, they get in Florida and other States, reasonable compensation. Reasonable compensation. There’s a lot of litigation on what that means. Reasonableness is not an hourly thing. It’s based on a lot of factors like complexity of the trust, the expertise of the trustee, the risk they’re taking, the conflicts that they’re dealing with.

It’s just not a black and white thing. But there’s a lot of litigation on it. I’ve seen it on both sides. I think that the more that beneficiaries understand trustee has a job to deal and they’re reasonably compensated, unless they waive it, the better. That they will understand and not try to cause a problem over that. The next thing we’re going to talk about is distributions. So stay tuned for more and thanks for stopping by. Hey, Mo, love.

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