Setting up a trust is one of the most important things you can do to protect your assets, especially as your wealth grows. Of course, simply setting up a trust isn’t enough; you need to make sure it’s run by the right trustee, and finding the right trustee for an instrument as effective and vital as an irrevocable trust can be quite difficult.
That’s partially because the duties of a trustee of an irrevocable trust are different from those of a trustee for a standard trust. Grasping these differences will help you pick the right legal advisor and trust manager for years to come. Let’s dive deep into the details.
Irrevocable Trusts in a Nutshell
Before we break down the duties of a trustee of an irrevocable trust, let’s review what exactly an irrevocable trust is. Put simply, an irrevocable trust:
- Can’t be altered by the grantor after it’s set up. This is part of what makes it a secure vehicle for assets you want to protect, like liquid wealth, real estate, etc.
- Is managed by the trustee instead of the grantor, so the trustee has control of asset management, distribution, etc.
- Some examples include living and testamentary trusts, but many irrevocable trusts also offer excellent tax benefits
Because these trusts are different from standard revocable trusts, choosing the trustee is an even more important choice. After all, you’re essentially giving control over the assets in the trust to another individual or entity. You have to have total faith in their abilities and competence.
This is doubly true when considering setting up an offshore asset protection trust (APT) or any other major financial vehicle to protect your wealth for years to come.
Core Duties of a Trustee of an Irrevocable Trust
On the surface, the primary duties and responsibilities of a trustee for an irrevocable trust are simple, and even obvious.
Act in the Best Interests of the Beneficiaries
For starters, the trustee for an irrevocable trust must act in the best interest of the beneficiaries. This is also called the trustee’s “fiduciary responsibility.”
This duty requires trustees to do what’s best for their clients, not what is best for their portfolio or their fees. For example, if it’s in the best interest of the beneficiaries to dissolve an irrevocable trust or distribute assets, the trustee must take those actions, even if it means they don’t get to oversee the trust any further.
Distribute Trust Assets
Next, the trustee of an irrevocable trust needs to distribute trust assets accordingly based on the trust’s documents, as well as an interpretation of the grantor’s intent or goals (in some limited circumstances, such as when the grantor is no longer available to make their wishes known).
The careful, accurate distribution of trust assets is important if an irrevocable trust is created to distribute wealth or other assets at a later date. For example, if you create an irrevocable trust to make sure that your descendants get your real estate or other assets, your trust’s trustee will ensure those assets go to the right individuals.
Invest Trust Assets
In some cases, the trustee of an irrevocable trust must also invest trust assets. This can be done to maintain the overall net value or wealth of the trust or for other purposes.
But this duty already highlights one of the main differences between trustees of irrevocable trusts and trustees of revocable trusts: the trustee of the former trust needs to wear more hats or have additional skills (in this case, investing/financial savvy).
Trustees for High Net Worth Individuals vs. Regular Individuals
That's it, right? Not exactly. Trustees who oversee trusts for high net worth individuals also have additional responsibilities and key differences compared to trustees who oversee trusts for "regular" clients.
You can best understand these differences with an analogy: think of a trustee for a high net worth individual as akin to a financial advisor for a high net worth individual. Then compare both of those imaginary people to their equivalents for folks without a lot of wealth to protect.
Let’s dive even deeper – it’s crucial you grasp these differences so you pick the right trustee for an irrevocable trust.
Financial and Legal Work for Non-High Net Worth People vs. High Net Worth People
Most people, especially low to medium net worth people after they get settled in their careers, have a financial advisor. But for the most part, the duties of the financial advisor are straightforward:
- They provide yearly check-ins for their clients' portfolios and investments
- They provide general updates on the performance of their investments
- They offer options and advice if there is an occasional change, such as a birth in the family, a new job, a divorce, etc.
But overall, the financial complexities are not excessive. The law is very clear, specific, and explored regarding the tax options and financial flexibility of people with six-figure yearly incomes.
Now imagine a financial advisor for someone with well over $1 million in yearly income, or a financial advisor for someone with even more money. That kind of financial advisor will have a more complex, highly detailed level of work on their plate. That advisor will need to:
- Provide more detailed, sound recommendations regarding investments, particularly for long-range goals
- Introduce the client to new financial instruments and solutions to problems, such as offshore asset protection trusts
- Ensure that the client doesn’t become a target for unfair litigation or for unexpected tax fees/mistakes
Put more simply, the financial advisor for a high net worth client has a lot more to do and has to have a greater range of skills and connections to get the job done.
Now take this analogy and apply it to the trustees of irrevocable trusts.
If you set up an irrevocable trust as a low to medium net worth individual, the trustee mostly just needs to manage the assets and ensure they get distributed to the right people when the time comes. If you are a low to medium net worth person, you don’t have to worry about obscure tax laws affecting your long-term investments or getting in trouble because of an aggressive lawsuit plaintiff.
And even if you do run into a legal question, the law is likely clear enough that you and your trustee can find a solution quickly.
If the opposite for high net worth individuals. The more money a person has, the more creative they can be with that money, and the more complex their problems and solutions become. Even worse, the law doesn’t make as much sense when you start creating trusts for seven figures of money or much more. That’s because:
- There isn’t necessarily as much case precedent regarding tax loopholes, savings, lawsuits, etc.
- There are simply more moving parts – the more wealth you have, the more you have to protect
For example, imagine that you are a high net worth individual and you want to launch a new business in a new country, or you want to expand your current enterprise to open up a new branch in a new country. In either case, you have several goals you need to achieve:
- You want to be able to maintain your privacy
- You want to ensure the company can be run compliantly with local tax laws
- You want to ensure the company or branch can remain within your relative control
Answering all those questions and achieving all those goals can be extremely complicated. If you set up a trust to do this, your trustee must get involved in a deeper, more creative way than otherwise. Indeed, the duties of a trustee of an irrevocable trust for high net worth individuals don’t just get involved in a legal sense. They must also get involved in an entrepreneurial sense.
This is just one example of how the trustees for high net worth individuals have extra duties. So choosing the right one becomes much more complicated and important on your part.
Additional Duties of Trustees for High Net Worth Individuals and Irrevocable Trusts
So, just what are those extra duties, and how do they affect your trust plans and other wealth management strategies?
Ensure the Law is Followed – Tougher Than You Think
First and most important, the trustees for irrevocable trusts created by high net worth individuals must ensure the law is followed. That sounds simple, but it’s much tougher than you may think. This ties in with the extra abilities and goals that high net worth individuals may have in mind.
For instance, say you want to set up a secure offshore asset protection trust to keep your wealth safe for decades. That’s not just a case of finding a jurisdiction with laws that protect against legal interdiction from America. It’s also a matter of finding a jurisdiction that:
- Doesn’t have any other legal entryways from other countries or partner branches
- Has the right legal abilities or actions for your future goals
The trustee needs to also ensure that your trust and its beneficiaries don’t break any laws in the jurisdiction in which you choose to set the trust up. This is extremely complex.
Even worse, setting up a trust for a high net worth individual often means leaving the territory of explicit and obvious case law. Instead, you get into the territory of asking questions and combining cases of people doing similar things, but not exactly the same things as you have in mind.
It’s closer to legal problem-solving instead of following an explored, already-identified, optimized course of action. Again, this just highlights the importance of finding a trustee who can fulfill their duties capably and confidently.
Provide Confident and Accurate Legal Counsel on Difficult Questions
Speaking of confidence, the trustee of an irrevocable trust for a high net worth individual needs to provide confident and, more importantly, accurate counsel. Indeed, a good trustee should be able to advise you with a very high level of confidence in terms of:
- The activities you want to perform
- The kind of trusts you wish to set up
- And more
This is more difficult because there’s often a very low amount of detail or case precedent available.
Negotiate with All Parties
Furthermore, the trustee of a high net worth irrevocable trust must be able to negotiate with all the parties involved in the deal. These can involve beneficiaries, the grantor or you, lawyers, individuals with special interests, law enforcement, and more.
As these duties pile up, you can see that being a trustee for an irrevocable trust for high net worth person means having a lot of different skills and experience.
Provide Creative Solutions to Beneficiary Needs/Grantor Goals
More broadly, a good trustee won’t just give you or other clients legal advice. Instead, they will provide you with creative solutions that blend legal, entrepreneurial, and investment advice depending on what exactly is necessary.
You might have a general idea of what you need to do to set up an offshore trust, for example. But your trustee should be able to advise you on that plan, provide a solution to any roadblocks or hiccups you encounter, and continue to serve as an effective advisor even after the trust is set up, especially if you plan to oversee the distribution of assets to beneficiaries later on.
In this sense, you can think of these trustees as creative assistants and advisers in the purest sense of the word. They are much more important to the security and effectiveness of your financial operations compared to their counterparts, who primarily have administrative and executive duties.
Getting in Touch with the Experts
Trustees for irrevocable trusts are everywhere. The problem isn’t finding one willing to set up an irrevocable trust or some other instrument on your behalf. The trick is finding the right trustee with the right business sense, the right commitment, the right experience, and other excellent attributes.
You probably don’t know where to start, but that’s where Dominion comes in. Our legal advisors don’t just help you tackle paperwork. We do everything involved with setting up the ironclad, Dominion-style defense you need as a wealthy entrepreneur. We’ll help you find the right trustee, determine the ideal structure, act as your expert advisor, and so much more.
Peace of mind, asset defense, and sound strategy: this is the value we offer. Get in touch today and learn how we can help you find and secure the right trustee for your irrevocable trusts.
