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Put Not Your Trust in Money; Put Your Money in Trust.
Variously attributed to Benjamin Franklin and Justice Oliver Wendell Holmes, it is an effective philosophy in today's complicated management environment. Much of the wealth in this country is held in trust for reasons of continuity, probate avoidance, succession planning, and for those using irrevocable trusts, there are tax planning advantages as well. Whether the trust is one of the popular living trusts or a more complex trust like an irrevocable life insurance trust (ILIT) or charitable remainder trust (CRT), there are basic questions that the trustmaker (grantor or trustor) needs to answer in order for the trust to work as planned.
Think of a Trust as an empty vessel into which the Grantor “pours” property. Like an Executor, a Trustee has the highest of legal obligations - a fiduciary duty - to manage the property, and see that it is used only in a manner, and for the purposes established by the Grantor in the Trust document.
Preservation and Management
The trustee, as manager, must establish realistic investment goals and policies, paying particular attention to restrictions that might cause problems. For example, inside a charitable remainder trust, investing in participating partnerships or assets with debt can cause the trust to lose its tax-exempt status. Trustees must also decide how much volatility and risk they are willing to tolerate as they position the trust assets for maximum return on their investments. Given recent market performance, trustees especially need to address the time horizon for which they have to manage trust property, and in some states, there's a "prudent man" or "prudent investor" rule that may limit decision making to conservative assets. Not only does the trustee have to manage the trust to address risk management concerns and beneficiary needs, there is also the tax efficiency angle that further complicates administration.
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