Catch of the Day: Beware the Bank as Successor Trustee

These essays offer real-life examples from my practice of how the biggest planning mistakes people make often have nothing to do with portfolio management and everything to do with miscues, oversights, and/or lack of awareness of obscure rules pertaining to the non-investment aspects of their financial plans.

Estate Planning Documents

Information gathering is a critical element of the financial planning process. As I have explained ad nauseum in this column and in other outlets, I encourage clients to provide copies of every scrap of paper that is remotely related to their personal finances.

Estate planning documents are key among the documents I review and upload to eMoney. It is not uncommon for me to find documents that are dated or contain provisions that may no longer be consistent with the clients’ objectives. Enter Ted and Judy.

Back in the mid-2000s, Ted and Judy dutifully presented me with a hefty folder of documents, including their revocable trust, wills, durable powers of attorney, Massachusetts health care proxies, and living wills. The documents had been drafted in 1998, which, at that time, was relatively recent. In reviewing the trust document, I noticed that it named Ted and Judy as trustees and listed a local bank trust department as a successor trustee.

As it turned out, the bank had referred Ted and Judy to the estate planning attorney who, in an apparent quid-pro-quo, inserted the bank to manage their affairs in the event of their incapacitation or death. At the time, Ted and Judy either had no qualms with this designation or did not think much about it. But when I brought the issue to their attention, they decided that they would prefer to have their eldest son fill that role.

However, inertia is a powerful thing to overcome and for the next few years my client conversation notes show that I provided reminders to update their trust document. Finally, in 2010, my gentle prodding was successful, and an amended trust agreement was uploaded to their eMoney vault.

Fast-forward to 2019. Ted and Judy are now in their late 80s and in failing health. In January, their son, Tom, called me to inform me that his dad was in the hospital and his mom, who has Alzheimer’s, requires nursing home care. He advised that he has assumed authority to make medical decisions under their health care proxies and now needed to take over their finances in order to pay for their medical and long term custodial care expenses.

A Scary Discovery

However, in reading through their estate planning documents he was deeply concerned that their bank was listed as a successor trustee instead of him. Aside from justifiable fear that he would be required to fight through bureaucracy and apathy at the bank to provide for his mom’s care, the bank they named no longer even has a trust company!

As you can imagine, Tom was greatly relieved to learn that the trust document he was reading had been amended in 2010 to make him the successor trustee and that we had a copy of the updated trust document in eMoney.

Tom will never know that this financial planning “catch” a dozen or so years ago (along with the gentle reminders over the next few years) enabled him to avoid considerable stress at a time when he is already dealing with the challenge of providing care for his aging parents. It is difficult to place a value on this, but I believe most readers will agree that this financial planning guidance was indeed valuable.

DISCLOSURES: Securities offered through J.W. Cole Financial, Inc. (JWC) member FINRA/SIPC. Advisory services offered through Financial Planning Hawaii and J.W. Cole Advisors, Inc. (JWCA). Financial Planning Hawaii and JWC/JWCA are unaffiliated entities.

Fee-Only Financial planning services are provided through Financial Planning Hawaii, Inc, a separate Registered Investment Advisory firm. Financial Planning Hawaii does not take custody of client assets nor do its advisers take discretionary authority over client accounts.

The information contained herein is general in nature. Neither Financial Planning Hawaii nor J.W. Cole provides client specific tax or legal advice. All readers should consult with their tax and/or legal advisors for such guidance in advance of making investment or financial planning decisions with tax or legal implications.