Managing a Trust for brother

[cat4ever]

Just wanted to get some general feedback on an opportunity my very rich brother has proposed. He'd like me to manage a living trust for him, with yearly distributions to kids/grand kids based on a set of rules he sets up. The trust will start with close to 100 million, and he says he'd pay me 0.05%/year of the total worth of the trust (e.g. $50,000/year for $100M) to manage it for him, which beats the rate fidelity would do it for. He says it saves some money for the trust, and is a way to keep that management money in the family. Lots of savvy finance types on here, is there any thing I should think about before taking him up on the offer? It's being established in Nevada which apparently is about the best state to do it in.

Nevada trusts can be a good option for passing wealth down through generations without incurring estate taxes at each transfer. They can also offer asset protection, with trust assets protected from creditors after a two-year vesting period.


Other benefits of Nevada trusts include:

• Privacy protection: Nevada trust laws offer a high level of privacy.
  
  
  
• Bifurcated duties: Responsibilities can be assigned to different parties.
  
  
  
• No state income tax: Nevada has no state income tax.
  
  
  
• Protection from creditors: Nevada has a “zero exception creditor” rule, meaning even divorcing spouses can't touch the trust.
  

Thanks!

 

[OldShooter]

Wow! That's a pretty big deal.

You should get a trust expert legal review of the trust document so you understand exactly what your situation is. These things can be very complex and hard to understand. A few random-order questions from your brief post:

• Will you be the trustee, a co-trustee, or an administrative employee? It sounds like the first.
• How much time is this job likely to take?
• Is there a procedure for you to resign as trustee?
• Is there a procedure for you to be removed as trustee?
• Is the proposed compensation/5 bps fair? A corporate trustee would probably be north of 100 bps. DW's megabank IIRC started at 150bps.
• This will apparently be a rev(ocable) trust, which will become an irrev trust on his death. What is your responsibility after his death?
• Are you responsible for selecting, hiring, and managing any help you need, like CPAs for trust accounting, for tax planning, and tax return prep?
• Are the distribution rules fixed or do you have some discretion? If the latter that is a recipe for intrafamily wars and lawsuits, particularly given the size of the trust. Don't agree.
• Who will manage the investments of the trusts? Do you have any responsibility or risk exposure? Who will manage the managers including hiring and firing?
• What insurance will the trust provide to protect you personally from lawsuits or tax issues? Will the trust indemnify you without limit against any claims related to your work for the trust?
• Who decides how much you should be paid including any necessary valuation of assets? How often and when do you get paid?
• Is there a Trust Protector? Who? What are the Trust Protector's powers? What are the procedures for replacing a Trust Protector unwilling or no longer able to serve?

FWIW my DW the trust expert says that only a few states allow perpetual trusts; Nevada and South Dakota are two of them. Schwab Trust is actually located in Nevada, probably for this reason. The other Nevada stuff you list is mostly common trust boilerplate. Nothing special but IANAL.

Don't be afraid to negotiate if the trust document is not acceptable to you or your lawyer. You are in the big time now.

Keep us posted! We don't have a presidential campaign to watch any more.

 

[steelyman]

It wouldn’t hurt to ask for a current and complete balance sheet (assets and liabilities) for the trust.

 

[pb4uski]

5 basis points/0.05% seems very low but I guess it depends on what you are doing and what duties are being subcontracted out.

Are you retired? If so, how much time woud this take? Just need more info to give you good advice.

Who will manage the $100m of investments? Do the accounting? File the required tax returns? Manage the distributions to the beneficiaries?

 

[Sunset]

Beyond all the great points OldShooter said:

I think your brother is trying to get you to work cheap.
How are you going to feel when you realized the investment brokerage that handles the investments gets $1,000,000 at minimum per year for simply buying various etfs and funds that will also charge fees of probably $500,000 per year.

Why doesn't he manage it, that alone should tell you something, like it's a ton of work.

 

[38Chevy454]

I agree it seems you need to get answers to many of the questions provided in previous replies. The rate of pay for you seems low, but also no specific list of responsibilities and time involved to make judgment. Why is your brother even doing the trust, what type of trust being considered, or who else could be the trustee?

 

[cat4ever]

Thanks all for providing the such detailed information. It's still very early, and I have thought of a few of the points you raise, but you've given me a lot more to think about.

The offer he got from Fidelity is:
"For $50mm to $100mm – the fee would land at .0625% and over $100mm, would be .03%. This is for a single Trust," I'm not sure if this is a sliding scale (e.g. only the money over 100mm would get the lower rate. If so, I'd like to know the rate from 0-$50mm.)

And definitely my brother is going to push for the lowest rate he can get, that's at least part of the reason he has gotten so rich.

Answers as of now to the bulleted list above...

• Will you be the trustee, a co-trustee, or an administrative employee?
  I believe I would be the managing trustee, but there will be one other assigned to the role.
• How much time is this job likely to take?
  I wish I knew, but I don't understand yet all the responsibilities that might be involved.
• Is there a procedure for you to resign as trustee?
  I had thought of how that would happen, but currently have no idea. I would not sign up if there isn't away to say I quit without incurring more than minimum time or monetary costs.
• Is there a procedure for you to be removed as trustee?
  Another good point, I would not sign up if I didn't have veto power over any effort to remove me against my will. I'd hate to put in a ton of time to get it set up and running smoothly only to then be removed.
• Is the proposed compensation/5 bps fair?
  A corporate trustee would probably be north of 100 bps. DW's megabank IIRC started at 150bps.
  I've posted what Fidelity estimated above, and I assumed I'd need to go slightly under that in my bid. Also I've asked him for details whether it's a sliding percentage.
• This will apparently be a rev(ocable) trust, which will become an irrev trust on his death. What is your responsibility after his death?
  Something I've thought to ask as well, but as of now I don't have a clear picture in my mind. I'm not even sure when the payouts from the trust begin, e.g. immediately, after his death, after his and his wife's death, etc.?
• Are you responsible for selecting, hiring, and managing any help you need, like CPAs for trust accounting, for tax planning, and tax return prep?
  I did ask him that and he indicated I would be. I guess Fidelity would provide that service as well.
• Are the distribution rules fixed or do you have some discretion? If the latter that is a recipe for intrafamily wars and lawsuits, particularly given the size of the trust. Don't agree.
  I made very clear that he needed to make the distribution rules black and white with no grey area to the greater extent possible.
• Who will manage the investments of the trusts? Do you have any responsibility or risk exposure? Who will manage the managers including hiring and firing?
  I don't foresee hiring anyone to do investing. He suggested it would just all go into one or a few index funds and that's it.
• What insurance will the trust provide to protect you personally from lawsuits or tax issues? Will the trust indemnify you without limit against any claims related to your work for the trust?
  Good question, I'll need to make sure that is the case.
• Who decides how much you should be paid including any necessary valuation of assets? How often and when do you get paid?
  yes, i made clear to him that needed to be written down, again in black and white.
• Is there a Trust Protector? Who? What are the Trust Protector's powers? What are the procedures for replacing a Trust Protector unwilling or no longer able to serve?
  Im not sure what that is, but I guess I'll read up on it.
  
  My initial naive thinking was that it would be easy money. Just create the trust to hold the money, invest it in a few index funds, let it grow, and then distribute as per the rules once a year, and figure the taxes once a year. Speaking of that, Are trusts usually setup like an IRA, where only distributions are taxed? Or do you have to keep track of capital gains, interest and dividends each year for tax purposes?

That's about all I know right now. I'll update as I find out more, including more details on the Fidelity offer, e.g. if it's a sliding scale and if so, what's the rate on the 0-50mil money. Please feel free to point all naivety in my thinking.

 

[cat4ever]

It wouldn’t hurt to ask for a current and complete balance sheet (assets and liabilities) for the trust.

It will be a new trust, so it doesn't exist yet.

 

[cat4ever]

5 basis points/0.05% seems very low but I guess it depends on what you are doing and what duties are being subcontracted out.

Are you retired? If so, how much time woud this take? Just need more info to give you good advice.

Who will manage the $100m of investments? Do the accounting? File the required tax returns? Manage the distributions to the beneficiaries?

yes I'm retired. I'm not sure how much time, but I was hoping 50 hours per year or less, especially once I've gotten the hang of things. After expenses I'd hope that would work out to at least $500/hour. I believe I would be doing (or hiring out for) all the above. And this would be into perpetuity, or at least until i die at which point I'd be able to hand it off to one of my children if they'd want it.

 

[cat4ever]

Why doesn't he manage it, that alone should tell you something, like it's a ton of work

when you have $100 million your time becomes much more valuable than it is for the rest of us mortals.

 

[cat4ever]

but also no specific list of responsibilities and time involved to make judgment. Why is your brother even doing the trust, what type of trust being considered, or who else could be the trustee?

It's very early in the process and part of posting here is to get a handle on these type of questions. He chose me because I am the youngest brother so likely to live the longest. I think any recipient of trust distributions wouldn't be a good choice, so that leaves just me and one other brother, as well as his wife's siblings, one of which will be a co-trustee in some capacity but I'm not yet sure of how. Maybe just a backup in case I suddenly die.

And I do need to follow up with him with lots of questions, including the ones posed here, but I want to become as informed as possible before broaching them.

 

[CaliKid]

Nevada is definitely one of the best for trusts of this variety. He's doing you a solid here and that's very nice. It's common to have a co-trustee situation. That is, you would be the family trustee and then a trust company would actually manage the assets. I would delve more into the setup he is picturing. Most people with 100m don't just throw it into a Vanguard 3 fund mix and forget about it. I would hire your own attorney because you will have fiduciary liability risk to protect yourself from.

 

[Kings over Queens]

I wouldn't do it.

My understanding is that being a trustee is a thankless job, throw family in the mix with all that money and it seems like a very tense Thanksgiving dinner.

"Uncle Cat4ever, I really neeeeeeed a new pony, can't you give me the money."

It's for this reason I'm hiring non-family to be executors of our rewritten wills and trustee's to the trusts we're establishing.

Hard pass.

 

[Sunset]

Whenever a relative/friend is hired to do something they are unfamiliar with (learn on the job type thing), the expectation is that the job will not be as good as a professional but that's acceptable as the friend is paid much less. If I want a professional job, then I hire a professional.

Here the brother might be fine with the low-cost management, but the kids/grandchildren and their spouses won't really appreciate the lower fee when their payout is untimely or reduced or not as large as they think it should be. They are allowed to sue.

In a similar to vein to how folks hire a lawyer for serious legal issues, this trust is sizable, and the action/inaction will be examined by family, which could lead to tense times

 

[cat4ever]

I wouldn't do it.

My understanding is that being a trustee is a thankless job, throw family in the mix with all that money and it seems like a very tense Thanksgiving dinner.

"Uncle Cat4ever, I really neeeeeeed a new pony, can't you give me the money."

It's for this reason I'm hiring non-family to be executors of our rewritten wills and trustee's to the trusts we're establishing.

Hard pass.

Thanks, and good point. The family does live far away, and I don't think I'd have any trouble following the stated distribution rules as laid out. While I'd rather keep good relations with the heirs than not, I wouldn't lose any sleep over it if they stop talking to me. I rarely talk to or see them as it is.

 

[cat4ever]

In a similar to vein to how folks hire a lawyer for serious legal issues, this trust is sizable, and the action/inaction will be examined by family, which could lead to tense times

good point. While losing relationships is not that big a deal to me here, having to spend time in lawsuits would be. If there's any chance I'd be sued personally (and not just the estate), that could sway me towards a hard pass. Is that really a possibility though?

 

[Sunset]

good point. While losing relationships is not that big a deal to me here, having to spend time in lawsuits would be. If there's any chance I'd be sued personally (and not just the estate), that could sway me towards a hard pass. Is that really a possibility though?

Yes, and there are lawyers eager to help.

Can Trustees Be Sued for Financial Mismanagement? | Legacy Lawyers

Poor decisions from a trustee can lead to major financial losses, now can trustees be sued for financial mismanagement? Here’s what you need to know.

www.thelegacylawyers.com

 

[Kings over Queens]

Yes, it's possible. You can mitigate that with fiduciary liability coverage and a trustee surety bond, with premiums paid by the trust of course.

 

[OldShooter]

good point. While losing relationships is not that big a deal to me here, having to spend time in lawsuits would be. If there's any chance I'd be sued personally (and not just the estate), that could sway me towards a hard pass. Is that really a possibility though?

Given the $$ amount, IMO lawsuits are inevitable. Possibly "undue influence" trying to break the trust, against you for breach of fiduciary duty, etc. There was a post here a few years ago where the one beneficiary of a trust was being coached and helped to break his trust by one of Fast Eddie's FAs, -- obviously so the FA could get the money and the consequent fees. (FYI when someone sues, they sue everybody. So you can count on being sued as an individual somewhere along the line.)

With all due respect, @cat4ever, this SGOTI's conclusion from your posts here is that you are extremely naïve about the scenario you are describing. If this ever gets beyond the cocktail talk stage, IMO you should hire yourself an experienced trusts and estates lawyer to explain and coach you into understanding the benefits and pitfalls of your brother's request.

Worse, if your brother is planning to set up a home-made trust without the help of experts, just run away. My post #2 was intended to flag a few of the many things that need to be looked at in a professionally written trust document. It was NOT intended as guidance for creation of an amateur document.

(Note you must have your own lawyer. For your brother's lawyer to also represent you would be a serious conflict of interest.)

 

[marko]

I wouldn't do it.

My understanding is that being a trustee is a thankless job, throw family in the mix with all that money and it seems like a very tense Thanksgiving dinner.

Personal experience agrees. That kind of money can afford a few extra bucks to have it professionally managed.

The trustee often has to be the "bad guy" and say no. A horrible position to be in. This is when it's bad to do good.

As Cindy Lauper sang: " Money Changes Everything"

Everything OldShooter said in post#19

 

[cat4ever]

Personal experience agrees. That kind of money can afford a few extra bucks to have it professionally managed.

The trustee often has to be the "bad guy" and say no. A horrible position to be in. This is when it's bad to do good.

Thanks for the input, and for all the input. It's greatly appreciated.

Regarding the extra bucks, I don't think it's that he cares much about that, but more that he thought it would be a good opportunity to present to me to make an extra 50K+ per year for the rest of my life.

And call me cold hearted (or naive?) but I'm not at all worried about being the bad guy. As long as the terms of distribution are in black and white I would follow that. There's no way I'd go down the road of making special favors to certain heirs. That is a sure road to hell.

My main worries will be dealing with complexity of setting it up and paying taxes, and possible lawsuits because the stock market drops for a couple years and the heirs are getting antsy and decide to sue me personally for negligence. That is something that would keep me up and night, no thanks. At this point I think I'd have to hire a specialized lawyer to get a better handle on the effort required, and not sure I want to do that even if the answer is probably going to be that it's not worth it in the end. Then I'm out the money I have to pay the lawyer.

 

[marko]

My main worries will be dealing with complexity of setting it up and paying taxes, and possible lawsuits because the stock market drops for a couple years and the heirs are getting antsy and decide to sue me personally for negligence. That is something that would keep me up and night, no thanks. At this point I think I'd have to hire a specialized lawyer to get a better handle on the effort required, and not sure I want to do that even if the answer is probably going to be that it's not worth it in the end. Then I'm out the money I have to pay the lalawyer.

Well, this is exactly why people have these things professionally managed. Lawyers have made fortunes for themselves battling terms "written in black and white". Something written down isn't going to deter someone who's convinced themselves that they're not getting a fair shake.

If your brother wants to shovel a few bucks your way, have him put you in the distribution for $X maybe in an "overseer" role of the management with no ability to influence anything. "Sorry kids, I just make sure the numbers are right. Go talk to them".

Again, money amplifies everything. You would not believe the antics I've witnessed over my 70+ years. Heck, my dad was sued by his own mother over inherited money!

As in many things, size matters. $100k estate? Go for it. $100MM?? Get a professional involved.

 

[marko]

Respectfully, I'm a little amazed that someone worth $100MM is taking such an amateurish approach to an estate plan.

You don't amass that kind of first generation money by being foolish or stupid. Somewhere along the line he must've run into horror stories of such risks and better options available.

 

[OldShooter]

... If your brother wants to shovel a few bucks your way, have him put you in the distribution for $X maybe in an "overseer" role of the management with no ability to influence anything. "Sorry kids, I just make sure the numbers are right. Go talk to them". ...

It is not uncommon to have a family member and a professional company as co-trustees and getting paid fees. One of the reasons is that it allows the professionals to be the bad cops. Such a situation would make the OP's situation vastly simpler. BUT IANAL. Seek professional advice.

... And call me cold hearted (or naive?) but I'm not at all worried about being the bad guy. As long as the terms of distribution are in black and white I would follow that. There's no way I'd go down the road of making special favors to certain heirs. That is a sure road to hell.

The kind of situation that may arise is if a beneficiary has a major health problem, possibly necessitating home care, some trusts allow acceleration or additional payments to that beneficiary. IIRC this is a "HEMS" clause (HEMS Trust Standard in Estate Planning | Trust & Will).

My main worries will be dealing with complexity of setting it up and paying taxes, and possible lawsuits because the stock market drops for a couple years and the heirs are getting antsy and decide to sue me personally for negligence. That is something that would keep me up and night, no thanks. At this point I think I'd have to hire a specialized lawyer to get a better handle on the effort required, and not sure I want to do that even if the answer is probably going to be that it's not worth it in the end. Then I'm out the money I have to pay the lawyer.

At some point if your brother's scenario starts to look seriously possible, IMO this is a BTD situation for you. To fear a few thousand $$ expense against the kind of situation you foresee would, again IMO, be penny wise but extremely pound foolish.

 

[Sunset]

Thanks for the input, and for all the input. It's greatly appreciated.

Regarding the extra bucks, I don't think it's that he cares much about that, but more that he thought it would be a good opportunity to present to me to make an extra 50K+ per year for the rest of my life.

.....

Well if he REALLY felt that way, he can just put you down for $50K for life in the trust as a beneficiary. Out of $100M that will be less than pocket change (less than any mutual fund yearly charge).

Seriously, as a sibling that he thinks could manage his $100M trust, he is not going to have you as a beneficiary to his estate tells me he is not looking out for your benefit.