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Serving Clients In An Evolving Fiduciary Landscape

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Periods of uncertainty highlight the importance of inclusive discussions regarding family wealth and well-being, familial expectations and how trusts can help facilitate collaborative decision making.

COVID-19 has made a lasting impact on almost everything, and trust management is no exception.

Trustees must make tough decisions in the face of unprecedented uncertainty while navigating beneficiaries’ fears and emotions. A new white paper by Northern Trust Chief Fiduciary Officers and ACTEC Fellows Pamela Lucina and Laura Mandel, originally published in the May 2020 issue of Bloomberg Tax Management Estates, Gifts and Trusts Journal, provides insight on questions facing trustees as they pivot to best serve clients in the current environment, including:

1

How should trustees respond to unusual or increased requests for trust distributions?

Exercise of discretionary distribution powers may need to be recalibrated in the face of market uncertainty.

2

How should distribution standards be re-evaluated in relation to the purposes of the trust and contemporary interpretations of boilerplate distribution standards?

Trustees may be faced with situations where one or more beneficiaries’ health needs or loss of employment may disrupt the established pattern of distributions within families. Trustees may need to limit the class of beneficiaries receiving distributions for some period of time or distributions may need to increase or decrease in the wake of COVID-19.

3

Is the trustee required to investigate changes to beneficiaries’ financial status, behavior, employment, family situations or other matters before distributions can be made?

If so, it is important to approach those requests with empathy when families are facing unexpected illness, loss of employment and a decline in the values of personal assets.

4

How should trustees address management of illiquid assets in trust, in particular closely-held businesses and real estate?

COVID-19 is the first real test of business continuity plans for many companies. Trustees should participate in critical planning for the company to protect and enhance the value of trust assets for the benefit of beneficiaries. Trustees are in an excellent position to share insights with management and participate in tactical and strategic assessments coming out of the crisis.

For real estate held in trust, trustees are likely to face requests from tenants for rent concessions. During this period of extreme market disruption, trustees well may determine that entering into rent concessions to secure existing tenants is prudent especially when the alternative would be an increase in vacancies.

5

Should assets previously gifted to an irrevocable grantor trust be substituted for assets that are depressed due to the current crisis but may have greater future growth potential?

Doing so may allow the grantor to further shift appreciation out of their estate.

6

How can trustees mitigate fiduciary liability with respect to investments?

During the COVID-19 pandemic, fear may cause some beneficiaries to request their investments be liquidated, or even “brought to cash.” As beneficiaries may request changes driven by emotion, a prudent trustee should rely upon data. Data often reinforces the dangers of market timing, made more perilous in periods of extreme volatility.

Download the white paper to learn more about how thoughtful trustees and estate planners must pivot to serve clients’ best interests in the current environment.

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Evolving Trust Management

Our experts discuss how we can help beneficiaries navigate uncertainty in a recent Bloomberg Tax article.

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Disclosures

This information is not intended to be and should not be treated as legal, investment, accounting or tax advice and is for informational purposes only. Readers, including professionals, should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific legal, accounting or tax advice from their own counsel. All information discussed herein is current only as of the date appearing in this material and is subject to change at any time without notice.

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