Keeping the Special in Special Assets

By Julio Castro | December 5, 2023

Any inheritance represents more than the value of the underlying asset, for both the benefactor and the beneficiaries.

That’s especially true when the inheritance includes a family business, real estate, a collection, or another precious asset. When the practical and emotional stakes are high, it’s important to seek out objective advice and support.

Special assets are pretty much any asset other than traditional stocks, bonds, or cash. They are often illiquid and complex, requiring specific skills to preserve, manage, and grow. If the next generation or their fiduciary lack the requisite passion, ability, or consensus, then governance cracks can quickly appear. No one wants siblings to end up fighting while a much-loved vacation home falls into disrepair. Or, as one new client family previously experienced, the unexpected incapacity of a business owner resulting in intra-family litigation and a court-ordered wind-down of the business. In short, the set-it-and-forget-it approach to estate planning critiqued by Michael Cozene in the previous edition of Independent Thinking is particularly ineffective in handling these assets.

Families and their personal fiduciaries don’t have to face these challenges alone. Indeed, they shouldn’t. The Office of the Comptroller of the Currency, the government agency that regulates national trust companies, requires that corporate trustees maintain the requisite level of expertise and establish adequate processes and procedures to effectively administer trusts containing special assets. This requirement should be a good standard for anyone asking a family member, friend, or advisor with taking on this important responsibility. Other considerations for existing and potential individual fiduciaries may include the scale of the necessary learning curve in administering these assets and the potential for personal liability. Please see the brief guide to selecting a corporate fiduciary below.

Managing special assets requires sensitivity and flexibility. Assets like these are usually of great emotional – as well as financial – significance to the family. Planning for these assets requires both great communication and specialized knowledge, so that the benefactor’s wishes are respected, and the individuals involved feel that they have been fairly treated. At the end of the day, what really matters is that the assets are managed in the family’s best interests – and that the family remains a family.

Julio Castro is a Partner and Wealth and Fiduciary Advisor at Evercore Wealth Management and a Managing Director of Evercore Trust Company, N.A. He can be contacted at julio.castro@evercore.com.

Identifying Your Trustee/s

“Just manage the assets and distribute the income equally to the heirs.” Simple enough, right? Maybe not.

All trusts, especially those designed to last for two or more generations, need to have an element of flexibility to balance the intent of the grantor with the evolving needs of the beneficiaries. Here are some additional considerations in choosing trustees for trusts with special assets.

1. lt takes a team. We usually recommend an individual trustee and a corporate trustee.
  1. An individual trustee generally has a long and intimate relationship with the family, ideally someone who shares the values and other qualities of the wealth creator and can serve for a decade or more.
  2. An experienced corporate trustee can protect the assets from theft or misappropriation, making thoughtful investment decisions, ensuring that the trust income is accurately reported and the appropriate tax returns are filed. A corporate trustee can also provide effective financial counsel to heirs.
  3. The right corporate trustee will supplement, not supplant, the individual trustee and other established family advisors.
2. All assets are not alike. Special and shared assets come with unique issues.
  1. Lifestyle assets (vacation homes, yachts, aircraft, and the like)
    1. Who will pay for ongoing property taxes, maintenance, insurance?
    2. Who will manage the property, including any rentals, and coordinate the family’s usage?
    3. Who will decide if the lifestyle asset is no longer an appropriate holding of the trust?
  2. Family business assets
    1. What role does this asset play in the family’s income and diversification?
    2. Who will manage the business and who will decide if the business should be sold?
    3. How will the business reinvest for growth while maximizing business income?
    4. How does the trustee’s decision-making process help or hamper the operation or the administration of the business?
  3. Art, cars, and other collectibles
    1. Is the intent to hold the items in perpetuity, or may they be sold over time?
    2. How and where will the items be stored and how will the cost of storage, maintenance, and insurance be covered?
    3. How are the assets intended to serve the needs of the beneficiaries – i.e., are they held for investment or for personal use?
  4. Other special assets, such as life insurance and digital assets (including cryptocurrency), present other issues.
3. Consider bifurcating trustee responsibilities
  1. Trust laws in Delaware and several other states now permit the division of traditional trustee responsibilities among multiple trustees or between a trustee and one or more advisors (such as investment advisors, distribution advisors, and trust protectors).
  2. Control over special assets can be vested in the person with the closest connection to the asset and remaining trustee duties handled by the corporate trustee.
  3. The trustee that is directed with regard to certain assets or duties is generally protected from liability for following directions.
4. Ask the right questions in identifying your corporate trustee team member.
  1. What experience and resources exist within the organization to understand the complexity and management of multigenerational trusts and the special assets?
  2. What is the governance structure and process for decision making for routine and extraordinary fiduciary decisions?
  3. Will experienced professionals be assigned to my family for the long term?
  4. Is there redundancy in place to provide continuity of administration, including fiduciary decisions, through vacations, illness, or emergencies?
  5. Are third-party professionals engaged to manage complex assets or support family cohesiveness? If so, is there an additional fee?
5. Prepare for the unexpected.
  1. Your advisors can recommend appropriate methods to give someone the right to replace your individual or corporate trustee if circumstances change.

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