Protecting your wealth with a trust Featured

8:00pm EDT October 26, 2010

Most executives are accustomed to carefully planning for the future of their business. But when it comes to planning for the future of their own wealth, these same executives are often not familiar with their choices or the potential risks of inaction. This can prove to be a big mistake, says Dexter Lowry, a certified financial planner at Union Bank in San Francisco.

“If you’re passionate about your business, you should be equally as passionate about protecting it in the event of your death or disability,” says Lowry.

Smart Business spoke with Lowry about how trusts can help protect your business and your family and how the right trustee can help ensure your personal and business financial plans are executed according to your wishes.

What is a trust, and how can it help protect your assets?

Very simply, a trust is a written agreement that provides the terms under which you wish your assets to be held and managed, and where you want them ultimately to be distributed. Once a trust is established, you then can systematically place all of your assets — your home, bank accounts, etc. — in the name of that trust. Then, you manage and control the assets until you become incapable due to death or disability. Your trust will also define when a person named by you will take over the role as your successor trustee. At that point your assets will remain in the trust and will be controlled by the language of the trust.

What are the benefits of establishing a trust?

First, you avoid time-consuming and expensive probate administration. The court and the attorney costs can quickly add up, plus the process is not a pleasant experience. It’s also very public, whereas a trust is a private document and assets are not exposed to public scrutiny.

Second, a trust protects your family from having to manage your assets should you become disabled or incapacitated. If you don’t have a trust in place, a conservator may need to be appointed by the court to manage your assets, should you become incapable. Once again, this is an expensive and public process that you can easily avoid.

Finally, a trust can help you reduce tax liability. In fact, many people view this as the prime reason to create either a living trust, which you create and fund during your lifetime, or a testamentary trust, which is created and funded after your death through the terms of your will.

Probably the most important thing to remember is that a trust allows you to make decisions from beyond the grave, but you have to put it in writing. You can include terms in the trust that tell your trustee how future decisions are to be made — even if you’re not here to make that decision.

How do you determine who should act as trustee?

A great deal of thought should go into this decision. You can select a family member to act as trustee, but you should think about family dynamics and how this decision could impact everyone. One advantage of choosing a family member is that they will often waive the fee for serving as trustee, or charge a lesser fee than a corporate trustee. This is an important consideration for a modest-sized trust, because it preserves the principal and income for the family’s needs.

Another approach is to appoint a corporate trustee to provide objective advice and act only in the beneficiaries’ best interests. A corporate trustee will make decisions based on a clear set of guidelines, often by committee, and could be a bank or firm that has the ability to make in-depth, knowledgeable and unbiased decisions. This approach also helps to insulate family members from having to make difficult decisions about distributions from a trust.

Appointing a corporate trustee is also a good option when a family business is involved, and the heirs do not know how to run the business. Corporate trustees have experts in managing closely held businesses, real estate and other special and unique assets and these experts can advise and assist in the management of the business. If you anticipate liquidity as an issue in the continuation of the business operations, a comprehensive financial plan will help you determine whether it is wise to implement life insurance strategies to provide for the ongoing operation of the business.

In addition, a corporate trustee can also find resources to assist your spouse to ensure they receive the care they need after your death or to help a child or other relative with special needs who requires lifelong care. The trustee has broad discretion to pay income and principal and can be allowed to make medical decisions, make decisions regarding treatment that is affordable and appropriate, help control spending and decide objectively and rationally about a beneficiary’s short-term and long-term needs to allow the conservation of trust assets.

How can executives begin estate planning?

Start by calling your attorney to find out if he or she specializes in estate planning or can make a recommendation for an estate planning attorney. You may also contact your relationship manager at your corporation’s bank to connect you with their trust department. At larger banks, a wealth strategist can assist with preliminary discussions about planning and will join your personal team of financial advisers — your banker, attorney and accountant — to uncover, develop and implement investment planning strategies customized for you and your business.

Disclosure: Wills, trusts, foundations and wealth planning strategies have legal, tax, accounting and other implications. Consult a competent legal or tax adviser.

Dexter Lowry is a certified financial planner at Union Bank, N.A. in San Francisco. Reach him at or (415) 705-7173.