The trust may be ready. But is the asset?
A carefully structured trust can accommodate sophisticated planning objectives. Yet when the assets include closely held businesses, private investments, real estate or partnership interests, the transition from legal planning to actual administration may be more complicated than anticipated.
An asset that fits the estate plan from a legal or tax perspective may still present practical questions about ownership, valuation, liquidity, reporting and ongoing responsibilities.
At Nevada Trust Company®, more than 30 years of trust administration experience have reinforced the value of addressing these questions before assets are transferred and the trustee assumes responsibility.
For attorneys working with clients who hold non-traditional assets, five areas deserve particular attention.
1. Is the asset actually ready to transfer?
Before an asset can be transferred into a trust, its ownership and transfer requirements must be understood.
For example, a limited partnership interest may be subject to consent requirements or restrictions contained in its governing agreement. A closely held business may require updates to ownership records or other entity documentation.
The practical question is whether the necessary steps have been identified and coordinated among the appropriate professionals. A trustee’s preliminary willingness to consider an asset does not mean the asset has been accepted or that every transfer requirement has been satisfied.
Consider: What documentation, approvals or third-party consents must be completed before the asset can be transferred?
2. What obligations will follow the asset into the trust?
Some assets create ongoing administrative responsibilities that extend well beyond the initial transfer.
Private investments may involve capital calls, periodic reporting and restrictions on liquidity. Real estate may require insurance coordination, property-related payments and oversight of third-party service providers. Business interests may involve recurring documentation and entity-level decisions.
These obligations should be evaluated as part of the proposed administration, not discovered after an important deadline has passed.
Consider: What recurring obligations will the trustee or another designated party need to track, and who will be responsible for acting on them?
3. Will the trust have sufficient liquidity?
An asset can represent substantial wealth without producing the cash necessary to support ongoing administration.
A trust holding illiquid assets may still need funds for taxes, expenses, fees, distributions or investment commitments.
Consider a trust holding a private investment interest that becomes subject to an unexpected capital call. If available cash is limited, the parties may need to coordinate quickly to determine what actions are authorized and how the obligation will be addressed.
The more important question is whether the trust’s liquidity needs were considered before funding.
Consider: What foreseeable cash requirements exist, and who has the authority to address a shortfall?
4. Who will make decisions involving the asset?
A trust may separate administrative responsibilities from investment or other decision-making authority.
In a directed trust, for example, a designated investment advisor or trust director may hold specified powers while the administrative trustee performs its assigned fiduciary functions.
For non-traditional assets, that distinction becomes especially important.
Who evaluates a proposed capital contribution? Who authorizes an asset sale? Who responds to a request involving a closely held business? Who is responsible for providing the documentation needed to implement a decision?
The governing instrument and applicable law determine the allocation of authority. Clear communication procedures help the parties carry out those responsibilities.
Consider: Are decision-making and implementation responsibilities clearly assigned for the assets the trust will actually hold?
5. What happens when the asset changes?
A business may be sold. A partnership may be reorganized. An investment may be redeemed. An asset may become difficult to value or require additional administrative attention. The original estate plan cannot anticipate every future development, but the parties can establish processes for addressing change.
This may include identifying the professionals who should be consulted, determining how information will be shared and confirming which fiduciary or advisor has authority to act.
Consider: Does the proposed administration model provide a workable process for changes in ownership, liquidity, valuation or asset structure?
Administrative readiness is part of successful implementation
For attorneys, these questions go beyond legal planning to help ensure that the planning can be implemented effectively.
Nevada Trust Company® works with attorneys, CPAs, investment advisors and other professionals to evaluate the administrative considerations associated with proposed trust assets. Our role is to support the trust structure through the fiduciary and administrative responsibilities assigned to NTC, while respecting the authority and expertise of the client’s existing professional team.
Addressing asset-acceptance requirements and ongoing obligations early can help reduce delays, clarify responsibilities and support a smoother transition into administration.
Before transferring non-traditional assets into a trust, consider involving the proposed trustee in the discussion.
Nevada Trust Company® welcomes the opportunity to review administrative requirements and asset-acceptance considerations with attorneys and their clients’ professional advisors.
