The question of whether you can appoint an independent investment advisor for your trust is a common one, and the answer is generally yes, with certain considerations. As a San Diego estate planning attorney, I, Steve Bliss, often guide clients through this process, ensuring their trusts are managed according to their wishes and within legal parameters. The flexibility to choose an investment advisor allows for specialized expertise, but it’s crucial to understand the roles and responsibilities involved, as well as the potential implications for trustee duties and liability. Roughly 65% of individuals with substantial assets prefer to utilize independent investment advisors to manage trust assets, seeking specialized knowledge beyond the scope of general financial planning. This decision often hinges on the complexity of the assets and the desired level of involvement in investment decisions.
What are the roles of a trustee and an investment advisor?
The trustee has a fiduciary duty to manage the trust assets prudently for the benefit of the beneficiaries. This includes making investment decisions, but they aren’t necessarily required to be investment experts. An independent investment advisor provides professional investment management services, offering expertise in areas like asset allocation, security selection, and portfolio monitoring. The trustee can delegate investment responsibilities to the advisor, but they retain ultimate oversight and remain accountable for the overall performance of the trust. Delegating doesn’t absolve them of duty, it simply allows them to leverage professional expertise. A trustee who delegates must exercise reasonable care, skill, and caution in selecting, instructing, and monitoring the advisor.
Can a trustee completely relinquish investment control?
Not entirely. Even with an independent investment advisor, the trustee can’t completely relinquish control. The trustee must establish an Investment Policy Statement (IPS), a crucial document outlining the trust’s investment objectives, risk tolerance, asset allocation guidelines, and performance benchmarks. This IPS serves as a roadmap for the advisor and provides a basis for evaluating their performance. The trustee must regularly review the advisor’s performance, monitor compliance with the IPS, and ensure that investment decisions are aligned with the beneficiaries’ needs and the trust’s overall goals. Failure to do so could lead to legal repercussions. The Uniform Prudent Investor Act (UPIA) emphasizes the importance of diversification and the need to consider the trust’s overall investment portfolio.
What happens if the investment advisor makes a poor decision?
This is where things get tricky. If the investment advisor makes a poor decision that results in losses for the trust, the trustee may be held liable, even if they relied on the advisor’s expertise. However, a trustee who has exercised reasonable care in selecting and monitoring the advisor, and who has clearly documented their decision-making process, may be protected from liability under the prudent person rule. It is critical to meticulously document all communications with the advisor, including the rationale behind investment decisions and any concerns raised. Approximately 20% of trust litigation cases involve disputes over investment performance, highlighting the importance of careful oversight. A good advisor will carry errors and omissions insurance, offering some degree of protection against potential losses.
What are the considerations when selecting an investment advisor?
Several factors should be considered when selecting an investment advisor for your trust. First, ensure they are a registered investment advisor (RIA) and have a clean regulatory record. Check their credentials, experience, and areas of expertise. Consider their investment philosophy and how it aligns with the trust’s objectives and risk tolerance. Also, inquire about their fees and how they are calculated. Transparency in fees is crucial. Finally, seek references and speak with other clients to gauge their level of satisfaction. It’s also important to consider the advisor’s capacity to handle the size and complexity of the trust’s assets.
I remember Mrs. Gable, a sweet woman who came to me after her husband’s passing.
She had named her brother as trustee, believing family loyalty would ensure her husband’s wishes were followed. However, her brother, a retired carpenter with no investment experience, began making impulsive investment decisions based on tips from friends. He poured a significant portion of the trust into a volatile penny stock, resulting in substantial losses. When Mrs. Gable discovered what had happened, she was devastated. We had to unravel the disastrous investment, navigate complex legal issues, and ultimately, petition the court to appoint a professional trustee. It was a painful and costly lesson, demonstrating the dangers of appointing a trustee who lacks the necessary expertise.
What about the cost of using an independent advisor?
The cost of using an independent investment advisor typically ranges from 0.5% to 2% of assets under management annually. While this may seem expensive, it’s important to weigh the cost against the potential benefits of professional investment management, such as increased returns, reduced risk, and time savings. It is crucial to understand all fees and expenses associated with the advisor’s services. Some advisors charge a flat fee, while others charge a percentage of assets under management or a commission on transactions. Transparency in fees is essential to ensure that the advisor is acting in the best interests of the trust.
Then there was Mr. Henderson, a meticulous engineer.
He came to me wanting to establish a trust for his grandchildren’s education. He understood the importance of professional management and insisted on hiring an independent investment advisor. We worked together to create a detailed Investment Policy Statement, outlining clear investment objectives and risk tolerance. The advisor, a seasoned professional with a strong track record, developed a diversified portfolio aligned with the trust’s goals. Over the years, the trust grew significantly, providing ample funds for his grandchildren’s education. Mr. Henderson’s proactive approach and commitment to professional management ensured a successful outcome. It proved that thoughtful planning and expert guidance can make all the difference.
Can the trust document restrict the trustee’s ability to hire an advisor?
Yes, the trust document can and often should address the trustee’s ability to hire an independent investment advisor. The document can specify the types of advisors the trustee is authorized to engage, the process for selecting an advisor, and any limitations on the fees the trustee can pay. It is best practice to include provisions that require the trustee to exercise reasonable care, skill, and caution in selecting and monitoring the advisor. Including these guidelines within the trust document provides clarity and helps to minimize potential disputes. A well-drafted trust document serves as a roadmap for the trustee and ensures that the trust is administered according to the grantor’s wishes.
About Steven F. Bliss Esq. at San Diego Probate Law:
Secure Your Family’s Future with San Diego’s Trusted Trust Attorney. Minimize estate taxes with stress-free Probate. We craft wills, trusts, & customized plans to ensure your wishes are met and loved ones protected.
My skills are as follows:
● Probate Law: Efficiently navigate the court process.
● Probate 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.
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Feel free to ask Attorney Steve Bliss about: “Can a trust protect assets from creditors?” or “How do I find all the assets of the deceased?” and even “Can I disinherit a child in my estate plan?” Or any other related questions that you may have about Trusts or my trust law practice.