The question of restricting trustee investment discretion is a common one, particularly for those establishing trusts and wanting to maintain control over how their assets are managed after their passing or incapacitation. It’s entirely possible to structure a trust to require unanimous or supermajority consensus among trustees for investment decisions, but it’s a nuanced area with potential drawbacks that need careful consideration. While granting broad discretion to trustees is often seen as advantageous for flexibility, limiting that discretion can provide peace of mind to the grantor, ensuring that investments align with their wishes and risk tolerance. Roughly 60% of individuals establishing trusts express concerns about how their assets will be managed, highlighting the desire for control even after relinquishing direct management.
What are the benefits of requiring trustee consensus on investments?
Requiring consensus provides a built-in check and balance, preventing a single trustee from making potentially reckless or unsuitable investment choices. This is especially valuable in situations where trustees have differing investment philosophies or levels of experience. Consider a family trust where one trustee is a seasoned financial professional and another is a relative with limited investment knowledge; requiring consensus can protect the trust assets from potentially misguided decisions. Furthermore, it can minimize internal conflicts among trustees, as each party understands their voice is essential. A study by the American Bar Association found that disputes over investment strategies are among the most common sources of litigation involving trusts; therefore, establishing clear guidelines upfront, like consensus requirements, can significantly reduce this risk.
Could requiring consensus actually *harm* the trust’s performance?
While it seems logical to safeguard assets, mandating consensus can inadvertently create gridlock and hinder timely investment decisions. In a rapidly changing market, the need for swift action is often critical. Imagine a scenario where a trustee identifies a promising investment opportunity, but other trustees are hesitant or slow to respond due to conflicting schedules or disagreements. By the time consensus is reached, the opportunity may have passed, resulting in lost potential gains. “Time in the market beats timing the market,” is a common phrase used by financial professionals. In fact, research indicates that trusts with overly restrictive investment clauses tend to underperform compared to those with more flexible guidelines, often by as much as 2-3% annually. A client once shared that their family trust had a similar limitation, and the trustees missed a pivotal real estate investment due to months of debating, ultimately costing the trust a substantial sum.
What happened when the Johnsons failed to address investment consensus?
Old Man Johnson, a meticulous carpenter, created a trust for his grandchildren. He appointed his two sons, Arthur and Ben, as co-trustees, believing their shared responsibility would ensure sound financial management. However, he neglected to specify how investment decisions should be made. Arthur, a conservative investor, favored low-risk bonds, while Ben, an entrepreneur, wanted to explore growth stocks. The ensuing disagreement paralyzed the trust for over a year. Neither trustee would authorize any investments without the other’s approval, leading to stagnation and missed opportunities. The trust’s value barely kept pace with inflation, and the grandchildren were disappointed when they eventually received their distributions. It was a clear lesson that good intentions aren’t enough; clear procedures are essential.
How did the Millers avoid a similar fate with a well-structured trust?
The Millers, recognizing the potential for conflict, consulted with an estate planning attorney, Steve Bliss, and specifically addressed investment decision-making in their trust document. They stipulated that while trustees could individually manage day-to-day portfolio administration, any significant investment changes – such as entering new asset classes or making large-scale trades – required unanimous consent. They also included a clause allowing for a tie-breaking mechanism—appointing a mutually agreed-upon financial advisor to act as the final decision-maker if consensus couldn’t be reached. This system worked seamlessly; the trustees collaborated effectively, leveraging their combined expertise while respecting each other’s viewpoints. When a promising venture capital fund came to their attention, they thoroughly researched it and, after a robust discussion, unanimously approved the investment. The fund generated substantial returns, demonstrating the power of collaborative decision-making guided by clear and well-defined procedures.
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About Steve Bliss at Wildomar Probate Law:
“Wildomar Probate Law is an experienced probate attorney. The probate process has many steps in in probate proceedings. Beside Probate, estate planning and trust administration is offered at Wildomar Probate Law. Our probate attorney will probate the estate. Attorney probate at Wildomar Probate Law. A formal probate is required to administer the estate. The probate court may offer an unsupervised probate get a probate attorney. Wildomar Probate law will petition to open probate for you. Don’t go through a costly probate call Wildomar Probate Attorney Today. Call for estate planning, wills and trusts, probate too. Wildomar Probate Law is a great estate lawyer. Probate Attorney to probate an estate. Wildomar Probate law probate lawyer
My skills are as follows:
● Probate Law: Efficiently navigate the court process.
● Estate Planning Law: Minimize taxes & distribute assets smoothly.
● Trust Law: Protect your legacy & loved ones with wills & trusts.
● Bankruptcy Law: Knowledgeable guidance helping clients regain financial stability.
● Compassionate & client-focused. We explain things clearly.
● Free consultation.
Services Offered:
estate planning
living trust
revocable living trust
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Map To Steve Bliss Law in Temecula:
https://maps.app.goo.gl/RdhPJGDcMru5uP7K7
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Address:
Wildomar Probate Law36330 Hidden Springs Rd Suite E, Wildomar, CA 92595
(951)412-2800/address>
Feel free to ask Attorney Steve Bliss about: “How does a living will differ from a regular will?” Or “Is probate public or private?” or “Will my bank accounts still work the same after putting them in a trust? and even: “What property is considered exempt in bankruptcy?” or any other related questions that you may have about his estate planning, probate, and banckruptcy law practice.