Have you been managing the family wealth yourself for a long time and your spouse is either not interested or not capable of managing the investments if you are gone? Do you fear that your spouse might be taken advantage of by an unscrupulous financial salesperson? Are you concerned your spouse would be overwhelmed with managing the family wealth? Do you have investments in a number of locations that would be difficult for your spouse to manage if you were gone? Is your spouse intimidated by taxes? If so, you are not alone! Working as a financial advisor for over twenty-five years I have met dozens of people in this situation. These investors have done a very good job at building and managing the family wealth and staying on top of taxes, but they are concerned about what might happen if they were no longer in the picture.
Two Options to Protect the Surviving Spouse
- Trust Planning with a Corporate Trustee
- Find a Fee-Only Fiduciary Advisor and build a relationship with them.
Option 1. Trust Planning with a Corporate Trustee
This option is the least desirable. Selecting a corporate trustee to manage the family wealth when you are gone will get the job done, but it can come at price. Families who decide to hire a corporate trustee will typically use the trust department of a bank or brokerage firm. Your investments will be in a generic, cookie-cutter asset allocation portfolio. The attitude at the trust department is often not one of service. Do not expect a return call or email on the weekend if you have an urgent matter. They only work 9 to 5. Trust advisors at banks often come and go and employee turnover is normal. If you are hoping for a long-term relationship with a corporate trustee, think again. Because your spouse will be a captive client the trustee has no incentive to do any more than is required. Do not expect the trustee to go out of their way to help your spouse for anything more than what is required of them to do. Depending upon your trust documents, your spouse may be able to fire and replace a corporate trustee they are unhappy with but changing corporate trustees is not easy. Your spouse will likely need assistance from your estate attorney to fire and replace the corporate trustee if replacing the trustee is desired. Your spouse may resent you for taking away financial control and putting a third party in charge.
Pros for a Corporate Trustee
- Peace of mind that your spouse is protected.
- Corporate Trustees will follow the instructions of your trust.
- Corporate Trustees follow the fiduciary standard.
- Investment risk will be managed through strict asset allocation policy.
Cons for a Corporate Trustee
- High expense.
- Surviving spouse may resent you for taking away financial control.
- Cookie-cutter portfolio.
- You must pay the trustee fees, investment management fees and legal fees.
- Limited relationship. Your account is just a number. Trustee is just a hired hand at the trust department.
- Employee turnover resulting in multiple trust advisors over time.
- Poor service is common.
- Difficult to fire a corporate trustee and remove them from the trust.
- Tax complexity and extra cost due to trust tax returns for irrevocable trusts.
- Advice may be limited only to investments and not holistic.
- Rigid and Inflexible.
- Bank may try to sell you products from other divisions or subsidiaries of the bank.
Option 2. Find a Fee-Only Fiduciary Advisor
A fee-only fiduciary advisor who you trust to manage the family wealth when you are gone is often the best solution for a person who is worried about how their surviving spouse will manage investments when they are gone. Building a relationship with a fee-only fiduciary advisor while you are still alive will give you peace of mind that you have someone your spouse can work with when you are no longer in the picture. A fee-only fiduciary advisor can offer you creative and thoughtful planning and advice that is tailored to your family’s unique circumstances. You can rest easily when working with a fee-only fiduciary because they do not receive hidden commissions and work only for transparent fees. You can be secure knowing that a fee-only fiduciary advisor will not sell products with hidden commissions to your spouse when you are gone. A fee-only fiduciary advisor must act in the best interests of their clients at all times. Choosing a fee-only fiduciary advisor to guide your family leaves your spouse in control and offers more flexibility when compared to a corporate trustee. Fee-only fiduciary advisors often provide holistic retirement, estate, and investment advice. Some Fee-only fiduciaries also give tax advice.
Pros for a Fee-Only Fiduciary Advisor
- Likely to be cheaper than a corporate trustee.
- Tailored investment and planning approach for your family vs cookie-cutter portfolio.
- Peace of mind that your spouse is protected.
- Fee-Only fiduciary advisors follow the fiduciary standard.
- Relationship with your advisor who knows and understands your family.
- Holistic advice from the advisor.
- Highest level of service.
- Easy to fire the advisor and hire a new one.
- May provide tax advice.
- Can provide estate, retirement and insurance advice.
- Flexibility.
- Leaves your spouse in control.
Cons for a Fee-Only Fiduciary Advisor
- Educational backgrounds differ widely.
- Skillsets and expertise differ from one advisor to the next.
- You will need to find an advisor with the skillset that matches your needs.
Preparing for Your Future
While you may be great at managing your investments by yourself, do not leave a mess to your spouse. If you have investments in numerous locations, consolidate them. Simplify your financial life. Consolidating your portfolio allows you to track performance, fees, cash flows, asset allocation, taxes and more, easily. Getting one or two 1099s is a lot better than seven or eight 1099s. Do not wait until it is too late to get your financial house in order. Start today on a game plan that everybody is on board with.
If you have questions about your investments, please give our office a call. We would be happy to give you a free second opinion on your portfolio.
Ethan S. Braid, CFA
President
HighPass Asset Management
Denver, CO