(Originally published on LinkedIn on March 6, 2019)
Northway Wealth Advisors (www.northwaywealth.com) is an independent provider of fiduciary guidance and assistance to individuals acting as trustee of trusts and executors or administrators of estates. The following is a fictionalized account of a very real issue for which Northway can provide an effective solution.
Rodger (“Rod”) Paulson was a very successful hedge fund manager. Not surprisingly, he had many close friends in that industry, though none closer than Stephen (“Steve”) Lamberti. The two men were godfathers to each other’s children, and their families vacationed together regularly. In their respective estate plans, each named the other trustee of family trusts to be established upon death. They trusted each other unquestioningly to do the right thing at the time.
Both men were risk takers, impatient and impetuous, disdaining detail and preferring to focus on “the big picture.” Unfortunately, and unexpectedly, Steve took one risk too many and died in a skydiving accident. Rod was devastated.
At the appropriate time, Rod sat down with his accountant and attorney to discuss the trusts of which he was now sole trustee. He fidgeted with boredom as the accountant chronicled in mind-numbing detail the nuances of process and recordkeeping required in fiduciary administration. He scowled in irritation when his attorney informed him that fiduciary rules limited his unfettered freedom in investing trust assets, particularly in his own hedge fund. And he stared angrily in disbelief when the attorney explained that fiduciaries are held to the highest standard under law and that his personal wealth – including his hedge fund – could be at risk if he failed to live up to that standard.
Lamberti’s two sons, Mario and Paul, were grown and starting families of their own. In due time they began to make requests for discretionary distributions from their trusts. Paul wanted to buy a large house on the water in another state, and Mario wanted to buy a very expensive Pagani Huayra sports car. Their stepmother Julia, Lamberti’s widow, strongly objected, though she had no role in the administration of their trusts. Rod found himself uncomfortably in the middle of a difficult family argument – with pressure and the fiduciary responsibility to make a decision on the requests.
Rod became very frustrated. The responsibilities of trust administration were distracting him from his business and his relationship with the trust beneficiaries was beginning to fray, causing him to worry about possible challenges to his performance as trustee. And to top it off, he was serving for no remuneration. Under normal circumstances, he would simply step out of the role. He had considered but rejected the idea of resigning in favor of an institutional trustee because he felt honor-bound to fulfill his late friend’s wishes personally. He also felt he was a better investment manager. And he rejected the idea of serving with an institutional trustee as co-trustee because he was constitutionally unwilling to share decision-making. Basically, he was stuck, and none too happy about it.
Rod shared his frustration with a friend in the family office industry who suggested that he speak with Northway.
Rod met with Northway representatives who explained how Northway's Trustee Support Services offering could be of help. Northway could act as Rod’s agent, providing him with assistance and support in meeting his fiduciary responsibilities while he retained complete authority and control – and ultimate responsibility – for the trusts. Rod would have the benefit of Northway's experience and expertise in fiduciary management and could rely on Northway to perform all of the required administrative tasks, freeing him up to focus on the more substantive issues and allowing him more time for his own business, all while ensuring that everything was done correctly.
Moreover, since Northway focuses exclusively on fiduciary governance and administrative matters and does not manage investments, Rod would continue to be able to manage the trust assets with the added benefit of Northway's knowledge of what is and is not appropriate from a fiduciary investment perspective. In sum, Northway would undertake those tasks Rod did not like to perform, he would benefit from Northway's expert input without giving up control, and he would continue to manage the investments. Basically, he would get the “sleep well at night” comfort that the trusts were being managed appropriately and that records were being maintained to help support the prudence of that management should his performance be challenged in the future. Hiring Northway would be easy: a simple agency agreement was all that was necessary (in contrast to the time-consuming court approval necessary for some co-trustee appointments), and the arrangement could be ended at any time if necessary (again unlike some co-trustee arrangements). Finally, Northway's agency fee would be paid by the trusts as a reasonable expense of trust administration, not by Rod. It was a no-brainer. Rod signed up with Northway.
Northway's Trustee Support Services offering provides assistance with both governance and administrative aspects of serving as a fiduciary. For more information, contact Dan FitzPatrick, President, at +1 (203) 720-8551 or dfitzpatrick@northwaywealth.com.