For this post, we are fortunate to be joined by Stuart C. Sherman, a California Licensed Professional Fiduciary with ConservaTrust Fiduciary Services, Inc. in Los Angeles, California.  Stuart agreed to sit for an interview discussing topics of concern and interest to the professional fiduciary industry.

1. Tell us what you and your fellow fiduciaries at ConservaTrust do.

We serve as professional fiduciaries, trustees and conservators.  A large part of our practice involves managing assets for other people—usually through a trust, guardianship, or conservatorship—to generate income for the beneficiaries.  The trusts we manage run the whole gamut of assets types and allocations: securities of all types and classes, real estate, even businesses. 

We have a great deal of experience managing real estate portfolios, including collecting and increasing rents for properties, managing cash flow, appraising property and evaluating potential for appreciation, and buying and selling property.  One of our core competencies is balancing and diversifying assets to achieve the objectives of the trust or other appointment, while also adhering to an appropriate risk profile for the representation.

We are also frequently called to serve in contested matters where family members disagree on the best course of action regarding the well-being of a family member with diminished capacity, and a neutral professional fiduciary is appointed by the court or through mutual consent of the family.  In these cases, our job is to exercise our professional judgment for the benefit of the ward, present unbiased reports to the presiding court, and seek approval and confirmation to liquidate and distribute funds as needed.  In both contested matters and general fiduciary work, we prepare detailed reports to account for all fiduciary activity.

In short, though, our job can be distilled into a pretty simple mission statement: taking care of people who need help managing their lives and their finances.

2. What is the most challenging or rewarding part of being a fiduciary?

There is always a balancing act between achieving the settlor’s intent and managing the expectations and desires of the beneficiaries.  The objectives of a trust are defined and restrained by the settlor’s intent, but the beneficiaries do not always appreciate that.  Almost always, the purpose behind a trust is to limit or delay the ability of a beneficiary to gain access to the trust assets, for whatever reason. But this can lead to frustration on the part of the beneficiaries, especially if the settlor did not explain in advance the purpose, terms, or limitations of the trust.

Another challenging area involves the need to provide an appropriate level of health, education, maintenance and support (the so-called “HEMS” requirements) to beneficiaries, while also adhering to the legal and fiscal requirements of the trust.  Beneficiaries often have an unrealistic expectation of what they will receive.  Part of our job is to work with beneficiaries to help them live within their means as provided or supplemented by the trust, to appreciate the value of income and growth from the trust assets, and to understand that the settlor intended for the trust to provide a lifetime benefit rather than a short-term windfall. 

This emphasis on life skills and a long-term outlook is particularly important when we are administering a trust for the benefit of a person who suffers from a medical condition, mental health challenges, or substance abuse.  When we are working with a beneficiary with any of these challenges, we often help them deal with many of the ancillary issues that arise because of their particular circumstances, including credit problems, difficulty borrowing money, inability to rent property, and inability to open bank accounts.  These challenged beneficiaries also often face social/economic problems such as people in their social group taking advantage of them, fraud on their accounts, people attempting to exercise undue influence to gain their assets, and loved ones or family demanding gifts and support.

The most rewarding part of the job is helping a beneficiary overcome these challenges and reach a position of stability and happiness such that they can use the settlor’s gift to improve their life and establish a long-term plan that will benefit them and their family.  There is also a rewarding sense of justice when we are able to extract a beneficiary from a bad situation, such as evicting squatters from a property or helping to resolve a legal dispute.  We are proud of the relationships we have developed in the fiduciary and legal community, including the courts, and are honored that our reputation is one of professionalism and high ethics.

3. Are there any trending legal issues that are of concern to professional fiduciaries?

Over the last decade, there has been explosive growth in the amount of electronic and digital property that we see in trusts.  Once upon a time, a trust was usually money, securities, real property, or business interests.  Now, we see a large amount of personal electronic property transferred into trusts, including photographs, electronic documents, and records.  The marshalling, valuing, administration, and distribution of electronic and digital property is a new frontier and is challenging the fiduciary industry to come up with creative best practices.

4. What changes would you like to see occur in your industry over the next 5 or 10 years?

I would like to see the state regulatory structure revised so small corporations can be Licensed Professional Fiduciaries.  This would allow certain beneficiaries, including those with mental health illnesses or substance abuse problems, to be better served.  Right now, the law requires that only an individual can be a Licensed Professional Fiduciary, but there are exceptions that allow trust companies, FDIC-insured banks, and SEC-registered corporations to serve as fiduciaries. 

So, there are two models of fiduciaries: large financial institutions, and individual license holders.  But the large financial institutions often cannot provide the same tailored service required when providing for beneficiaries with mental health or substance issues, or cases in which the fiduciary is required to exercise a large amount of discretion regarding distributions.  The problem is that the individual fiduciaries often have successor issues if the trust is going to be administered over many years. 

For example, think of a minor child with developmental disabilities and a substance abuse problem, who is the beneficiary of a trust that provides full discretion to the trustee to care for the child.  The child has a strong chance to outlive the Licensed Professional Fiduciary if it is an individual person.  In that case, it would be of great benefit to have a small corporate entity as the Licensed Professional Fiduciary. This would allow a succession plan to be built into the fiduciary relationship, where the successor would already have institutional knowledge of the beneficiary and his or her particular challenges, and the beneficiary would have familiarity with the successor.

5. As a professional, and a frequent client of lawyers, could you offer one or two tips to lawyers on what they can or should be doing to make their clients happier?

Attorneys and their clients should keep in mind that an estate plan is about a lot more than just what happens after the settlor dies.  In fact, many people become, in effect, beneficiaries of their own estate plan at the end of their life.  The estate often handles things such as end-of-life care, assisted living or nursing facilities, and living expenses.  Assets which are included in the estate plan often need to be accessed and liquidated to raise funds to pay for these costs, which can be extremely substantial.  It is a good idea to plan for these things when preparing the estate plan.

We also would recommend that attorneys and settlors avoid trusts that provide fixed payments of net income, as opposed to percentage distributions.  This is because fixed payment distributions can be hard to administer (especially when there are remainder beneficiaries) and often tie a fiduciary’s hands with respect to making transactions for the good of the trust and the beneficiaries.  A unitrust with percentage distributions of 3-5% allows the trustee needed flexibility, while also providing clear trust objectives.  Unitrusts allow the trustee to set a long-term investment strategy and plan for cash distributions.  The unitrust also often allows the trustee to better predict and communicate future distributions to beneficiaries and remainder beneficiaries, thus decreasing conflict and frustration.

Stuart C. Sherman, CPLF, can be contacted at ConservaTrust Fiduciary Services, Inc., 1611 S. Pacific Coast Highway, Suite 301, Redondo Beach, CA 90277, 310-792-8838.