What Are The Benefits Of Naming A Corporate Fiduciary?

Many individuals who establish trusts choose to name a close friend or relative as trustee.  However, there are many situations where naming a corporate fiduciary is a far better alternative.

Acting as a trustee requires that the person have a good background in finance and tax. Failing that, the liability of making poor financial decisions may be overly burdensome for someone selected primarily because of their relationship with you. Depending on the size of the estate, performing as a trustee may require more time and energy than the person is able to devote to the required duties.

Here’s another problem, and one that we see often. It is unfair to the beneficiaries of the trust to pay a trustee for services rendered if the trustee is not qualified to perform the services, or does not have the necessary credentials to manage the trust. Even if friends or family members are professionals in finance, law or tax, they may not necessarily have the right knowledge of estate tax. They may be capable and trustworthy without being qualified. Paying them if they are not qualified may lead to bad feelings between family members and/or friends.

Along those lines, naming a friend or relative may subject the individual to highly charged and emotional disputes. If they are a friend, they may not appreciate being thrust into a family argument, and if they are a family member, they may bring their own emotional baggage that may complicate even the simplest of arrangements.

An alternative is the corporate fiduciary, which will take on a more business-like approach to the tasks and responsibilities of managing a trust without becoming emotionally involved in any disputes among the beneficiaries. Naming a corporate fiduciary also adds permanence to the choice and ensures that individuals who are skilled in money management, taxes, and conservation of trust principal will administer the trust.

Selecting a bank or independent trustee does not preclude family participation in the trust decisions. A friend or family member might be named as a co-trustee, with power to make or participate in decisions regarding discretionary distributions to beneficiaries.

The best estate plan in the world can be undermined by poor trustee selection. This is a decision to discuss with advisors, including the family estate attorney, CPA, financial advisor, and other trusted professionals.

Congress Waives Required Minimum Distributions

The CARES Act ( the “Act”) waives the required minimum distribution rules for certain defined contribution plans and IRAs for calendar year 2020. This provision provides relief to individuals otherwise required to withdraw funds from such retirement accounts.

This also includes individuals who turned 70 1/2 in 2019 but elected to defer their initial distribution to April 1, 2020. If an individual has taken their RMD, they can redeposit it if sixty days have not elapsed since the date of the distribution.

Hardship IRA/401(k) Withdrawals

The Act will allow coronavirus related withdrawals from their 401(k) and IRA accounts up to $100,000 during 2020 and avoid the normal 10% penalty for those not of the required minimum age of 59.5.

Reasons for Coronavirus related withdrawals include

(1)    An account owner diagnosed with COVID-19, or

(2)    A spouse or dependent is diagnosed with COVID-19, oe

(3)    An individual who experiences adverse financial consequences because of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to the coronavirus, or

(4)    closing or reducing hours of a business owned or operated by the individual due to coronavirus, or

(5)    or other factors as determined by the Treasury Secretary.

You are still required to pay income taxes but don’t have to pay the full amount in one year. You can spread that tax due over three years. Another option is to redeposit the withdrawn amounts back within three years.

Treatment of Charitable Deductions.

Generally, taxpayers must itemize their deductions to take advantage of charitable deductions. This itemized deduction requirement is eliminated for charitable deductions of up to $300 for most contributions for the 2020 tax year. Note that not all charitable deductions are eligible for this treatment. Specifically, charitable contributions made to a private foundation or donor-advised fund, are not eligible for the above-the-line charitable deduction.

In addition, the limitation that applies to the amount of a charitable deduction that can be claimed by individual taxpayers is based on a percentage of the individual taxpayer’s adjusted gross income is also eliminated for 2020.

Finally, a reminder – if you do not have a healthcare proxy in place, visit our website www.sjslawpc.com and fill in the contact form. We will send you a personalized healthcare proxy with directions. Print it out, insert a date, sign your name on the line indicated in front of two unrelated witnesses. Make sure that the document is readily available in an emergency. We can ONLY do this through the website.

If you have questions, please send them to sjs@sjslawpc.com.

Be safe,

Stephen J. Silverberg, Esq.