Is Your Trustee Trustworthy?

Hope springs eternal in the human breast when even the Cheerios Kid can make a comeback. With his sidekick Sue, he was an iconic mainstay in the ads for the General Mills cereal during the 50s and 60s before his cell-animated storylines were put out to pasture to make way for a wave of faster-paced, sensory-bombarding commercial forms.

Only in a more cholesterol-conscious age was he brought out of mothballs to promote the hearty and healthful impact the oat-based product could have on consumers. But the emphasis on good eating habits this time around didn’t hold a candle to the mini-adventures capsulated in those one-minute promotions from olden times where a bowl of “Go-Power” got the Kid through when all else failed.

I recall in one the narrator informed viewers that, “When he grabbed his rifle trusty, he found it was a trifle rusty.” They just aren’t making ‘um like that anymore.

In the case of U.S. v. Randy Read (memorize that and name-drop at your next dinner party) the taxpayer funded an irrevocable trust with his spouse’s appreciated stock options for the benefit of their children. Over time the options were exercised and the stock sold and the trust accrued an income tax liability to the tune of about $125,000. Rather than paying the tax bill the trustee distributed the trust assets to the kids according to the terms of the trust.

When the IRS finally caught up with him, which they always do, the U.S. District Court held the trustee personally liable for the tax owed because he had paid other expenses “having notice of the facts that would lead a reasonably prudent person to inquire as to the existence of the debt” owed to the United States.

As insurance advisors we, all the time, encourage clients to make plans that involve the selection of people to serve in fiduciary roles – be it the executor of a will, an attorney-in-fact under a power of attorney, a trustee of a trust, or the like.

At this point people usually shuffle about for some super-nice, but semi-reliable Uncle Joe in the family who is willing to fill the role as an accommodation having little understanding of the responsibilities involved.

The must be ready to make life-altering decisions, sometimes under extreme circumstances. In addition they must conduct the financial aspects of their office in good order, and while the empowering document may indemnify them from liability involving those in their charge, it does not necessarily absolve them of responsibility to other third parties, especially the federal government.

A second admonition is to give proper care in the selection of contingent or co-fiduciaries. In many cases, especially when planning for young children, appointed fiduciaries are usually older than those they will serve, so the likelihood that the contingent may be called upon looms large. And understand that with co-fiduciaries, an appointee must be sure to select like-minded people to advance a planner’s purposes – and make sure there can be no tie votes!

Be sure that any legal counselor you recommend adequately tutors clients as to the importance of and qualifications for those selected to conduct their affairs when they cannot.

The cereal was named CherriOats when introduced by General Mills in 1941. Over the years 15 additional variations have been marketed, the latest being Ancient Grain Cheerios which includes age-old grists like spelt, quinoa and karmut wheat. Honey Nut Cheerios is the largest selling cereal brand in the United States. The original ole oats roll in at #4.

Call us concerning questions you have on the role of fiduciaries in your clients’ Life Insurance, Annuity, Long-Term Care and Disability Income planning.