Question: My wife and I are in the process of planning our estate. Our goal is to make sure that upon the first of us to die, the survivor will receive enough income to live comfortably from trusts we intend to establish and from the other assets. When we began to sort through which of our children (all in their 30’s with varying degrees of financial expertise), we became concerned about potential conflicts of interest between our children as ultimate beneficiaries of the trust and my wife or me as the income beneficiary for life: If the trust assets are invested for income, the children as ultimate beneficiaries will suffer, while if the trust assets are invested for growth, my wife or I as the income beneficiary will suffer.

Seeing a problem if we named any of our children as trustee, we decided to use a bank trust department, but, after doing a lot of reading, we are concerned about the advice we have been given. Is there a way to resolve this without a family feud?

Answer: Your perception is correct. The way in which long-term trusts are drafted can have a significant effect on investment performance within the trust and certainly can cause conflicts of interest between beneficiaries. But trusts can and should be prepared to meet the needs and objectives of all beneficiaries. That’s why the traditional language which separates principal and income is now being replaced by words of art which combine the interests of the income and remainder beneficiaries in order to maximize total trust performance.

The “Total Return Trust” is designed to balance the interests of the income beneficiary and the remainder beneficiaries while allowing the trustee to pay out as much as possible to the current beneficiary. Instead of paying just income, the trust pays the life beneficiary a percentage of the value of the total trust in designated payments. In this way, all beneficiaries are “partners” in the success of the trust rather than rivals.

While this is an oversimplification of the Total Return Trust, we suggest that you find an attorney and an investment manager who understand this concept and go back to the drawing board.

Question: My wife and I, now in our mid-60’s, began looking at our wills and estate plan last week and were shocked to see that it had been more than 20 years since we had it drawn up. At that time, we had three children at home. Now they are all educated and on their own with their own families. Of course our assets have increased since that time, and we are in the process of retiring. Is there any set rule about when estate plans should be reviewed?

Answer: While there are no established timetables about reviewing estate and other planning documents, generally speaking, plans should be reviewed when there are significant changes in your lives, such as --- a spouse or beneficiary dies or becomes incapacitated, there is a divorce, you change jobs or retire, you acquire new assets or your investments change in value significantly, or you move to another state. Even if there are no such changes in your life, you should have someone look at, but not necessarily change, your plan every five years just to make sure something is not slipping through the cracks.

Question: My parents named a bank as trustee of certain trusts under their will for me and my two siblings. The balance is less than $200,000, the performance has been terrible, the fees are rising, the investments are being made in the bank’s proprietary products, and we have been “serviced” by four different account representatives in the past five years. We have been to the bank, and they refuse to step down as trustee. Lawyers tell us there is no way to get rid of the trustee unless there is a breach of fiduciary duty. Is there anything we can do?

Answer: Unfortunately, many parents choose corporate trustees and give them investment autonomy without understanding the potential ramifications. In addition, trusts of this size are generally too small for most banks, but if accepted, beneficiaries can count on poor service and investment performance.

We believe that there is a conflict of interest for a corporate trustee to invest trust assets in proprietary products that are marketed by his or her institution. In addition to earning trust fees, the bank is also earning fees on the investment products. Nationally, complaints about these types of problems are on the rise. We suggest that you contact a lawyer who can begin a dialogue with the bank after a seasoned investment expert reviews the portfolio and gives you an opinion of whether or not the bank has prudently fulfilled it’s fiduciary responsibilities.