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Globacor Press Release

Trustee appointment requires careful thought

Financial Planning, April, 2014

Too often, we see trusts with complex tax implications administered by a family friend, a spouse, son or daughter - essentially an appointment of convenience.

Paul LeBreux recently told me that "A trust is one of the most versatile and effective ownership tools we, as advisors, can recommend to our clients." He is the president of Globacor Tax Advisors, a Canadian tax and trust legal expert, and the former chair of STEP (Society of Trust and Estate Practitioners) Canada. We were talking about trusts and their use as a planning tool in our professional advisory practices.

Financial, tax and legal practitioners have used trusts for estates, wealth preservation and tax planning as well as for a myriad of other uses. Trusts can be domestic, international or a combination of the two. Trusts can be created during the lifetime of the settlor - inter vivos trusts - or upon the death of a person - testamentary trusts.

"Today's high net-worth client will often be associated with multiple trusts, as a settlor, a beneficiary, a trustee, a protector, an appointer, or any number of combinations of the above," said LeBreux. Such trusts, among other purposes, hold international real estate, split income with family members, protect assets from creditors, obscure benef icial ownership or ensure an ongoing income stream to various dependents.

Unfortunately, the world of the "trust" is not so rosy for many clients. LeBreux, who has practised in this area of law for over 20 years, believes the answer is quite selfevident. The main reason trusts are so often maligned by clients as ineffective, expensive, complex, cumbersome, etc. is often directly related to the trustee's inability to fully understand and appreciate the trust's overall purpose. Furthermore, LeBreux finds more often than not that the trustee is not part of the initial planning, having been appointed to their fiduciary role well after the decision to implement a trust plan was completed.

In fact, for many clients the decision as to whom to appoint as trustee is made at the last minute with little or no consideration or appreciation as to the importance of the role, he said. Too often, we see trusts with complex tax implications administered by a family friend, a spouse, son or daughter - essentially an appointment of convenience. The individual fulfilling the role of trustee rarely appreciates the liability that may be associated with it, and may not even be qualified. For example, they may not appreciate the need to ensure that the accounting and bookkeeping are up to date and accurate, the tax returns and various reporting filed correctly and on time, and the nuances that exist among beneficiaries. Unqualified trustees, in more cases than not, look to the settlor or a beneficiary to direct them as to what needs to be signed or done in order to fulfil the planning needs.

"We refer to these trustees as 'sign-here sticker' fiduciaries. Is it any wonder that the CRA is taking a more aggressive stance in arguing that certain trusts are nothing more than a mere sham - an alter-ego of the settlor or beneficiary?" said LeBreux.

Unfortunately, the situation, although different, is rarely better when a bank or trust company is appointed as the trustee. Licensed institutions are certainly qualified to act as a professional trustee, and they will in most cases outlast the purpose of the trust. But they lack the personal knowledge of the situation that gave rise to the appointment in the first place, and the individuals often change quite regularly. Since institutional trustees are in the business to provide trust services, they are often more inflexible due to increased liability and the fact that they must answer to shareholders. Clients have also expressed concern that corporate trustees are too expensive. "As trust and tax practitioners we can recommend the proper utilization of a trust, we can prepare detailed planning memoranda that lay out each step in detail, discuss the tax implications, the planning logistics, etc. In essence, we can dot every i and cross every t, but we cannot watch over the trustee's every move to ensure that the meticulous planning continues to be adhered to and continues to address the needs and wants of the parties involved," LeBreux said.

Don't think from all our discussion that the use of a trust is no longer warranted or advantageous. But it is important that the appointment of a trustee be given far more weight and consideration - and if, for whatever reason, a proposed trustee would not be capable of ensuring that the planning remains valid and up to date and be in a position to determine whether or not the purpose of the trust was capable of continuing to fulfill its objectives, then the creation of a trust probably should be reconsidered.

As stewards of financial and estate planning, what I hope you take away from our conversation is to always seek wise legal counsel to best avoid potential professional liabilities when advising clients.

By Peter Merrick, MerricWealth.com

About Globacor Partners Inc.
The Globacor Group of Companies has been successfully investing in businesses since 1996. Globacor's team of lawyers, bankers, tax advisors, accountants and real estate investment experts supports the implementation of solid business plans to deliver superior results. At Globacor, we understand that we will succeed only if our partners do. We have an unwavering commitment to share what we learn with our partners and to infuse everything we do with the knowledge we gain from being a leader in financial services.