Florida Estate Planning Lawyer & Attorney : Stokes McMillan Maracini & Antúnez : Litigation, Probate, Trust Administration

In this recent Wall Street Journal article, the pros and cons of the increasing trend toward employing multiple trust advisors to manage a single trust are explored.  The article points out that in the past, when it came time to appoint a trustee, most families opted to appoint a single trustee (such as a family member, trust company, or trusted advisor) to perform trustee duties such as investing and monitoring trust funds, ensuring tax returns and related paperwork get filed, and making distributions to beneficiaries.  When families did choose to appoint multiple trustees, it was typically under a scheme where all the trustees shared the same responsibilities.  Nowadays, however, more and more individuals are invoking a more complicated regime when it comes to who manages their trusts:

"...families are 'slicing and dicing' trust duties, says Dennis Belcher, a trust lawyer with McGuire Woods LLP in Richmond, Va.  Families are specifying that one trustee, typically an institutional trust company, hold custody of the assets and handle the administrative trustee duties. Meanwhile, another fiduciary -- often a family investment committee -- has the authority to direct investments. Trust creators are also naming separate trustees to handle distributions to beneficiaries. "

In order to manage the increasing number of trustees per trust,  some individuals are even opting to designate "trust protectors," who are given the power to hire and fire trustees.  Additionally, a growing number of states have enacted laws that specifically allow trust documents to name separate trustees for administration and for trust investments; trusts that utilize this approach are termed "directed trusts" and can be especially useful for families who may be uncomfortable handing family businesses or real estate over to trust companies for management.

Despite the benefits these "directed trusts" can provide, there are several cons to keep in mind, namely: cost and complexity.  Dividing trustee duties between multiple institutions or individuals can clearly lead to an increase in trustees' fees.  Additionally, appointing multiple trustees can make it difficult to determine which trustee is responsible for what, and hence which trustees bear fiduciary responsibility if things go wrong. 

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In Revenue Procedures 2007-45 and 2007-46, the IRS released sample language to be utilized in drafting both inter vivos (Rev. Proc. 2007-45) and testamentary (Rev. Proc. 2007-46) charitable lead annuity trusts (CLATs).

A CLAT is an irrevocable split-interest trust which provides that during the term of the trust, a specified amount be paid to one or more charitable beneficiaries, and that at the end of the term of the trust, the principal remaining be paid over to (or held in trust for) a noncharitable beneficiary named in the CLAT. An inter vivos CLAT conforming with applicable statutory requirements qualifies the gift of an interest in the CLAT for the gift tax charitable deduction and/or the estate tax charitable deduction, while a testamentary CLAT results in the value of the charitable lead annuity interest being deductible by the decedent’s estate. Given the obvious benefits that a CLAT can provide, any estate planner drafting one should ensure full compliance with the IRC by paying close attention to the new sample drafting language (with accompanying annotations) published in Rev. Procs. 2007-45 and 46.

Among one of the more important annotations found in Rev. Procs. 2007-45 and 46 is the annotation regarding guaranteed annuity amounts. For one thing, in order to qualify for an estate tax charitable deduction, a CLAT must provide for the payment of a guaranteed annuity amount at least annually to a qualified charitable organization for each year during the annuity period. To qualify as “guaranteed,” the annuity amount must be determinable. It is “determinable” if the exact amount that must be paid under the conditions specified in the instrument may be ascertained as of the appropriate valuation date. A charitable interest expressed as the right to receive an annual payment from a trust equal to the lesser of a sum certain or a fixed percentage of the trust assets (determined annually) is not a guaranteed annuity interest. An annuity interest is also not guaranteed if the trustee has the discretion to commute and prepay the charitable interest prior to the termination of the annuity period.

For other drafting considerations and useful annotations see Rev. Proc. 2007-45 and 46.

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