Wisdom From The Founding Fathers–Checks and Balances Offer Good Protection For Your Family

August 6, 2015 - Posted by: admin - In category:

taxes - No Responses

Borrow some Constitutional design elements for your estate plan for the sake of your loved ones (and for your peace of mind).

It has been said that “Power tends to corrupt and absolute power corrupts absolutely.” Surely our Founding Fathers understood this principle and when they were drafting the Constitution and otherwise laying the foundation for our great nation, they took steps to protect against absolute power and its related corruption. James Madison, Benjamin Franklin, James Monroe, Thomas Jefferson, George Washington and their colleagues designed the framework of our federal government (and retained power for the states) in a manner that distributed power broadly among various branches of government and provided “checks and balances” whereby each branch of government could monitor and reign in the scope of power and authority being exercised by other branches. While it has not always worked perfectly, it has worked well overall and has permitted our nation to function over the centuries in a manner unequaled in the world’s history.

Ok, with that patriotic introduction, what in the world does this have to do with you and your estate plan? This post continues the ongoing discussion about family planning and family protections that we began last week. CLICK HERE TO VIEW THE BEGINNING OF THAT DISCUSSION.  We have already noted that problems among children and other family members are quite common and are more prevalent and problematic in situations where there has either been no planning or planning has been inadequate and short-sighted. We also noted earlier that a good rule of thumb is to expect and protect against the very worst possible situations. It is far better to be safe than sorry and always prudent to err on the side of too many protections rather than too few.  

Today’s topic, which orbits this same theme of wise planning to avoid or at least significantly limit future problems, is the principle of designing your estate plan to include a series of checks and balances similar to those found in the Constitution. Am I suggesting any level of “big government” or bureaucracy? No, certainly not! However, I am saying that instead of leaving all authority and discretion within the hands of one single individual, it might be better to instead seed at least a portion of authority among the hands of a few, each of which has limited oversight on the actions of the others.

Perhaps the most basic way to implement this concept is to ensure that there is a “Trust Advisor” appointed to help with oversight and administration of the trust after the makers of the trust have exited the scene. All of the trust we design have this Trust Advisor role, but the degree of authority and the things for which the Trust Advisor responsible vary with each Trust and the family circumstances related to the same. In most instances, the Trust Advisor is appointed (pursuant to applicable Utah law) as the surrogate for a court and as the ultimate arbitrator of any disputes. In this regard, the Trust Advisor serves in a manner that is similar to the judiciary branch of the government. As the name implies, the Trust Advisor also serves generally as an advisor to the then-serving trustee, including offering assistance with the interpretation of the terms of the Trust and advice in how to best execute and implement the same. In this capacity, the Trust Advisor is somewhat akin to a presidential cabinet–the President still retains authority to act, but has the valuable resource of his cabinet with whom he/she can consult prior to taking actions.

Another example of this “checks and balances” concept is to appoint two or more co-trustees to serve jointly. Sometimes one or more co-trustees are given particularized authority or are responsible for a certain asset or other specialized or compartmentalized portion of the overall estate plan. At other times, the co-trustees are given equal power and authority and are required to work in concert with one another prior to taking ultimate actions in the name of the Trust. This type of arrangement might be likened to the legislative branch of our government. While it is true that the most common candidate for successor trustees are family members or friends (i.e. individuals), there are also times when it makes sense to appoint a corporate trust company to play a role in the execution of an estate plan. There are pros and cons to using a professional trustee service. In summary, like all other elements of proper estate planning, the design and structure should be customized to the needs and desires of the individuals involved, especially the maker(s) of the trust.

As we always say, this is NOT one-size-fits-all stuff.

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