(BOK Financial Advisor Trust Services) - The 1986 Tom Cruise movie, Top Gun, introduced us to Lieutenant Pete “Maverick” Mitchell. Ignoring standard training protocols and pushing the limits of his fighter jet, his “outside-of-the-box” instincts succeeded much to the chagrin of his commanders and peers.
The 80’s also saw estate planning attorneys introduce the non-traditional role of trust protector into their client’s estate plans.
Most often, the trust protector, as an individual or group, consists of family members or close friends. People with whom the grantor believes will best represent their intentions upon their incapacitation or death.
Unlike the traditional fiduciary role and responsibilities of a trustee, a trust protector is typically considered a non-fiduciary empowered with a clearly limited and defined scope of duties while insuring the trustee is adhering to the trust grantor’s intent and wishes. Their powers are discretionary rather than mandatory, and consist of those not primarily associated with a trustee.
Some of the most commonly used trust protector powers include:
- Power to remove and appoint trustees.
- Power to veto, approve, or consult with trustee regarding principal and income distributions to the beneficiaries.
- Power to approve trustee fees
Arguably, the most impactful of these, is the power to remove and appoint the trustee; especially if allowed to do so without cause or court involvement.
As I wrote in January 2019, (Tools for Advisors: Succession Planning for Clients and Your Firm) it is critical advisors engage in substantive dialogue with their clients around next-gen and estate planning. Failure to address this will often result in the advisor losing their seat at the family financial planning table as well as the “preferred advisor” status they have worked so hard to obtain.
Fundamental to this discussion will be the modification, amendment, and/or creation of trusts to facilitate the generational transfer of wealth, optimization of estate taxes, and protection of assets. As is the case with nearly all living or revocable trusts, the grantor will name themselves and/or their spouse as the trustees.
It is the discussion surrounding who should be named as the successor trustee where the advisor’s future role with the family often encounters a major roadblock. Those advisors that have partnered with an “advisor friendly” corporate trustee will seek to have them placed in the role of successor trustee with themselves identified as a “preferred advisor” for managing the trust assets. In so doing, the advisor mitigates potential successor trustee risk in which the individual family member or friend named as a successor trustee will have no intention of maintaining the relationship with the advisor.
Frequently, when the idea of naming a corporate trustee is introduced by the advisor, the client will dismiss the recommendation for several of these common reasons:
- A corporate trustee won’t allow my preferred advisor to manage the trust assets and mentor my beneficiaries
- A corporate trustee is too impersonal and doesn’t understand our family dynamics
- I want someone other than my beneficiary to have the power to remove and appoint the trustee.
- I want someone who has a personal relationship with my beneficiary to make discretionary distribution decisions from the trust.
Although these may be reasonable objections a grantor may have, the advisor can address all of them by introducing the concept of a trust protector as well as their preferred “advisor-friendly” corporate trustee as an option for the successor trustee role. It is also an opportunity for the advisor to counsel their client on the advantages of naming a corporate trustee versus an individual trustee who will likely have very limited, or no core competency fulfilling the role of trustee. This “unbundling” of the trustee, protector, and preferred investment advisor roles presents a superior and more flexible alternative than the traditional “one-size-fits-all” bank/trust company.
As outlined earlier, the grantor can name a family member or friend as a trust protector to fulfill the role of “wingman” with the advisor’s corporate trustee partner. Acting alongside, and in conjunction with the corporate trustee, the trust protector can insure the grantor’s legacy and wishes are carried out by the corporate trustee. The trust protector can be compensated with a reasonable fee and the grantor can name successor trust protectors should their original choice decline or be unable to continue in the position. Frequently, drafting attorneys will recommend appointing the same person they have named as their medical and/or financial power of attorney as the trust protector.
Overcoming the initial hurdle of introducing the role of a trust protector and an “advisor friendly” corporate trustee into discussions surrounding your client’s wealth transfer planning is the first step in assuring you won’t be kicked to the curb upon your client’s death or incapacitation. If we learned anything from “Maverick’s” original escapades and recent return to the big screen some 36 years later, it is the essential role a “wingman” plays in the ultimate success of the mission. If you haven’t already taken on an advisor-friendly corporate trustee as a wingman in your practice, don’t get caught in the “Danger Zone” while flying the mission solo.
As a founding member of one of the original “advisor friendly” independent trust companies in 1991 and widely considered a pioneer in this rapidly expanding arena, Mike Flinn consults with advisors in the strategies and questions necessary to engage clients in the successor trustee dialogue. During his career, he has enabled advisors to capture and manage over $6 billion in new trust assets.
Mike Flinn
Vice President, National Sales Manager
BOK Financial Advisor Trust Services
Direct 480-596-4334 or MFlinn@bokf.com
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The content in this article is for informational and educational purposes only and does not constitute legal, tax, or investment advice. Always consult with a qualified financial professional, accountant or lawyer for legal, tax, and investment advice. Neither BOK Financial Corporation nor its affiliates offer legal advice.
By Mike Flinn, BOK Financial Advisor Trust Services
