Outside trustee can ease family tension

Published online on Tuesday, Sep. 15, 2009

Living trusts for second marriages. More disclosure on 401(k) fees. Those are the issues fielded this week by two of our "Ask the Experts" counselors on money matters, attorney Mark S. Drobny on wills/trusts and CPA Perry Ghilarducci on investing.

Question: We have an 18-year-old living trust that we need completely rewritten. Our tax attorney has been doing our income taxes for years and knows our assets "like a book." Would it be wise, or a conflict of interest, to have our tax man rewrite our trust and be the trustee?

We know from experience that having one child be the trustee can severely strain family relations. This is a second marriage (with five children between us). Both of our previous spouses are deceased. What would you advise?

Answer: In a second marriage where each spouse has children from a previous marriage, choosing one child from one side of the family as trustee is a recipe for disaster.

One alternative is to name one child from each side of the family, so both sides are assured access to information and a say in administering the estate after both parents have died.

Going outside the family to an independent trustee minimizes the risk of family disputes, but can dramatically increase the expense of administering the estate.

I would ask a few more questions. While your "tax man" is clearly experienced in preparing income tax returns, how much experience does he have drafting and administering trusts? As complicated as your situation could become, I'd be looking for an estate planning attorney who has over 10 years of experience drafting and administering hundreds of estate plans.

Q: Managers of 401(k) accounts are under no obligation to disclose fees they can remove from individual accounts. Will full transparency ever come to fee disclosure with regard to 401(k) accounts?

A: Great question. This is definitely a hot issue and there is pending legislation in Congress to address fee disclosure. The latest bill (H.R. 2989) by Rep. George Miller, D-Martinez, chairman of the House Education and Labor committee, addresses several significant retirement plan issues.

Specifically, the "401(k) Fair Disclosure and Pension Security Act of 2009" would:

-- Ensure that workers receive basic investment information, including risk, return, complete fees and investment objectives before signing up for a plan.

-- Require that all fees charged against a worker's account be totaled and included in the employee's quarterly statement.

-- Require firms to disclose to employers the fees charged for administration, investment management, transactions and other services.

-- Require 401(k) plan administrators to offer at least one low-cost index fund in order to receive liability protection against participants' investment losses.

-- Require service providers to disclose financial relationships so employers sponsoring 401(k) plans can be sure there are no conflicts of interest.

-- Give the U.S. Department of Labor authority to enforce new disclosure rules and impose fines on plan providers who violate them.

It is difficult to predict if Congress will take any action on this legislation this year.