Investment Management Pitfalls in Estate Planning

Trusts offer a wide range of estate planning benefits depending on a trust’s structure and its ultimate goals. Of course, one of the primary purposes of estate planning is the preservation and growth of estate assets through the effective use of trusts. However, from the investment management perspective, trusts are only effective to the extent that they are well managed. Thus, it is imperative that those who are considering the creation of a high-value trust take special care in avoiding the most common investment management pitfalls.

Be Careful About Who You Put in Charge

When a grantor creates a trust, they must also name a trustee to oversee the administration of the trust. While selecting a trustee is almost always one of the most important decisions when creating a trust, the factors you should consider when reviewing potential candidates depend on the type of trust, the value of the assets contained in the trust, and your goals in forming the trust.

For example, many grantors name trusted loved ones to manage a trust. This is a workable solution in many cases. However, just because you have someone in your circle who is willing to serve as a trustee doesn’t necessarily make them a good fit. For example, managing a multi-million-dollar trust is very labor intensive and requires the trustee have significant investment experience. While some grantors may have loved ones who can adequately handle these responsibilities, those for whom an obvious choice doesn’t stand out should at least consider naming a corporate trustee. However, it is important to note that corporate trustees are typically much more conservative in their approach than individual trustees.

Include an Investment Policy Statement

Trustees have a fiduciary duty to trust beneficiaries; however, otherwise, trustees have broad discretion in how they invest trust assets. Grantors can provide additional direction to trustees by including an investment policy statement in the terms of the trust. An investment policy statement is a clause that outlines the investment objective of the trust and clarifies which investment strategies the trustee should employ to pursue these goals. For example, an investment policy statement may explain that a trust’s purpose is to preserve assets and that the trustee should refrain from investing trust assets in speculative investment products, such as options contracts (other than defensive options used to hedge against significant market movement).

Discuss Your Family’s Needs with an Experienced Houston Estate Planning Law Firm

If you are considering creating trust, it is critical that you carefully consider who you put in charge. At the Houston estate planning law firm of McCulloch & Miller, PLLC, our attorneys have significant experience helping families create effective estate plans that will provide them with peace of mind for decades. We also have first-hand experience advising clients through the trustee-selection process. To learn more, and to schedule a consultation to discuss your needs with an experienced Houston trust management lawyer, call McCulloch & Miller, PLLC, at 713-903-7879 today. You can also connect with us through our secure online contact form.

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