Monday, January 30, 2006

Why the wise wealthy need a corporate trustee

Sunday's New York Times offered an interesting discussion of incentive trusts, the pros and cons.

The article quotes a New York estate-planning attorney who gives sound advice about choosing a trustee:
A trust that offers a dollar for every dollar earned can be unfair, the critics say, because it gives big rewards to already-successful business people and much smaller amounts to heirs who may work just as hard but have chosen careers as, say, artists or teachers. (And unless other provisions are made in the trust, homemakers and volunteers may get nothing.) Critics also say that some incentives may go so far as to pay children to provide their parents with grandchildren.

Treating siblings differently can lead to unintended consequences, said Ralph M. Engel, an estate planning lawyer in the New York City office of Sonnenschein Nath & Rosenthal, based in Chicago. "The problem is that there are too many what-ifs," he said. "What if one sibling can do something and the other can't? What if one becomes disabled or depressed or has an accident?"

Instead, Mr. Engel advises clients to write flexible trusts and to be careful in choosing trustees, who make distribution decisions.

"Pick a trustee who has the guts to say no," he said. Professional trustees, like experienced banks or trust companies, may not be easily swayed by emotional appeals. ***

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