Why your estate trustee needs full disclosure

1 month ago 33

Estate planning is the process of organising and managing an individual’s assets and financial affairs in preparation for the distribution of those assets upon their death or incapacitation. It involves deciding for how an individual’s wealth, property, and liabilities will be handled, who will inherit their assets, and how taxes or legal matters will be managed. Key components of estate planning include drafting wills, creating trusts, appointing guardians for minor children, establishing powers of attorney, and minimising taxes on the estate. The goal is to ensure the efficient transfer of assets according to the individual’s wishes while minimizing legal complications and financial burdens for beneficiaries.

Estate planning is a crucial part of ensuring that your wishes are carried out after having passed on. Estate planning is what every individual who cares for his family’s welfare when he dies should be interested in. To avoid intestacy, individuals are encouraged during their lifetime to set up a plan that ensures that their intentions speak even after their demise.

A key figure in the estate planning process, just like in other trusts, is the trustee. The trustee, depending on the content of your estate plan, performs the functions of trustee as well as executor. Irrespective of the type of trust you are setting up; family trust, charity, or other purposes, the trustee, is crucial in ensuring that assets bequeathed to individuals by a settlor in the estate plan go to the beneficiaries named in the trust. However, for the trustee to be able to effectively and efficiently carry out its responsibilities, as enshrined in the trust, the settlor must provide accurate and detailed information about his/her assets. The trustee becomes ineffectual when the settlor fails or refuses to provide adequate information that would enable the trustee to perform its duties either as Trustee or as executor. In the process, the settlor ultimately hurts himself and the beneficiaries and undermines the goals and objectives for setting up the trust in the first place.

This article is therefore intended to highlight some of the challenges faced by the trustees while trying to obtain information from settlors wishing to set up a trust or estate plan.

As earlier stated, trustees rely on information provided to them by the settlor to carry out their duties; therefore, if the trustee does not have a full understanding of what assets are part of the trust or the specific details as to bank account numbers, property titles, or business interests, it becomes much harder to manage the trust assets effectively. Incomplete or incorrect information provided by the settlor can result in assets being overlooked, mismanaged, or even lost. Incorrect or inadequate information relating to the assets of the settlor not only creates confusion for the beneficiaries but can also lead to legal disputes or delays in distributing the trust assets.

For instance, a situation where the settlor fails to provide full information about a piece of land he owns in a remote area means that, after his demise, neither the trustee nor any of the beneficiaries may be aware of the existence of that piece of land, making it impossible or difficult for the trustee to manage or pass on the same as part of the estate. Should the trustee discover this asset after the demise of the settlor, it might face legal hurdles in proving ownership or handling it as part of the trust, particularly if that asset does not have the necessary documents.

Another challenge the trustee faces in obtaining and managing trust assets is where assets are hidden or misrepresented. Experience has shown that for various reasons, many settlors choose not to disclose everything they own to their trustee, thinking they can deal with it privately or that it won’t matter in the long run. Trustees have noticed that the most prominent and known cases are offshore accounts, joint properties, or business stakes. However, by withholding information relating to those assets, the trustee is unable to assemble those assets and bring them into the trust. This explains why many offshore accounts or assets are suddenly converted by the countries where those assets are domiciled because the owners of those accounts or assets cannot be traced. Worse still, if such undisclosed assets come to light later, it could lead to tax issues, complications with creditors, or disagreements among beneficiaries, all of which could have been avoided had the settlor disclosed details relating to those assets or accounts.

What then are the implications for such nondisclosures? Problems arise quickly. Incorrect or missing information can lead to financial losses for the estate. For instance, if the trustee is unaware of an investment account, life insurance, or retirement fund, it might remain unused or uncollected, leaving the beneficiaries with less than they should have received. In some cases, assets can be claimed by the state if the owners of those assets are unaccounted for.

Also, unclear instructions or hidden details can create rifts among family members. If beneficiaries suspect that not all assets have been disclosed in a will or trust instrument prepared by the trustee, the beneficiaries may question the trustee’s actions or accuse it of misconduct, even if the trustee is diligent and transparent in discharging its duties. It also creates a feeling of betrayal or resentment among the settlor’s loved ones, who may feel that they were unfairly deprived of their inheritance. In the worst cases, this could spark legal battles that drag on for years, further diminishing the value of the estate.

It is in the light of these that we encourage settlors to be honest and transparent in disclosing the assets they intend to put into a trust. One of the key duties of a trustee is to ensure that conversations and information between the settlor and itself are kept confidential and that except where compelled by law, they refrain from disclosing vital information relating to trust assets to third parties. Where settlors fully disclose details relating to assets to be placed in a trust, the trustee and beneficiaries have a clearer picture of what assets are in the trust and the interest of the beneficiaries therein. This essentially reduces the chances of misunderstanding or conflicts. Transparent disclosure of details of assets in an estate plan makes it easy for beneficiaries to trust the process and feel secure in the knowledge that the estate is being managed according to their wishes. This creates and sustains family cohesion, and harmony and prevents disputes from arising within the family.

My advice to settlors is that it is the responsibility of their trustees to ensure that their vision for the future is achieved and the plan protects their family members when they pass on. However, their vision can only be achieved once they can trust their trustee and be transparent in providing accurate information about their affairs. These details are clearly stated in their estate plan. It is therefore essential that the settlor and the trustee should have a heart-to-heart conversation providing full details of all the assets, as well as any specific instructions that the settlor may give. This might include everything from bank accounts and real estate holdings to digital assets like cryptocurrency, online business ventures, or intellectual property. The more meticulous and thorough the settlor is with disclosures, the more confident he can be that the estate will be managed effectively.

We recognise that there is always that concern that revealing too much, especially about one’s financial situation could lead to privacy concerns or potential exploitation. This is where choosing the right trustee becomes so important. Trustees are bound by legal and ethical duty to act in the best interests of the beneficiaries and to protect the privacy and security of the estate. When selecting a trustee, it is vital that the settlor choose a trust company that is trustworthy, experienced, and capable of handling the complexities of managing their assets.

Conclusively, estate planning is a complex process that requires careful attention to detail. Trusting your trustee with full and accurate information about your assets is crucial to ensuring that your estate is managed efficiently and that your beneficiaries receive assets that have been bequeathed to them. Without this transparency, the risk of mismanagement, potential legal disputes, and family tensions increases significantly. Therefore, when planning your estate, take the time to gather all necessary details and work closely with your trustee to ensure that they have adequate information they require to manage your assets effectively.