February 19, 2011 (Original publish date) • By Dennis Beaver
“We are an old Portuguese farming family in the Hanford, California area, and I have done everything your column on Stockbrokers said that I shouldn’t have,” the e-mail from “John” began.
“We have been too close with our stockbroker, following his advice to the letter. He put together a will and family trust, and since there is no one else in our family who could be trustee, our stockbroker offered. We have two sons, one who is very competent and able to take over the farming business, but the other is irresponsible, spends money he doesn’t have, and is not just manipulative, but even threatening. We recently became aware that this son and our stockbroker go on hunting trips together and socialize with their wives.
“As trustee, he has broad powers to give them money any way he sees fit, or to invest any way he wants to. My wife feels we need to immediately change everything to protect our good son. We fear the manipulative boy could get his hands on everything, with the help of the stockbroker. Do you have any advice?”
Stockbroker should never be your trustee
Like so many people, John believed the stockbroker put their interests before his own. They trusted their broker, which is a huge mistake. You can no more trust a stockbroker to think of your best interests than you can a used car salesman. That is reality. That is current law. Stockbrokers are not fiduciaries and do not owe you or your family a good faith duty to put your interests before theirs, no matter what you are told.
A fiduciary is a person in a position of trust who would manage John’s estate and the interests of his sons for their benefit, and not his own. While stockbrokers serve an important investment function, in general, they are not licensed fiduciaries, and are in a clear conflict of interest in this type of a situation. Making your stockbroker trustee of your estate is the best example I can think of the fox guarding the chicken coop.
They need to: (1) Retain an experienced estate planning attorney, and (2) Have a consultation with a licensed, private professional fiduciary who could easily serve as trustee of their estate on a reasonable, hourly fee basis.
I ran John’s situation by Chris Kennedy, a Visalia-based professional fiduciary and national certified guardian with the firm of Perine & Dicken Professional Fiduciaries. He provided You and the Law the following analysis:
Good son, bad son
“We see very similar, financially dangerous situations like this all the time: a combination of good son-bad son, and the person selected to be trustee has a financial interest in the family’s money. But what’s far worse here is the overly close relationship the trustee has with one of the children.
“This is an invitation to rip off the responsible son. They need to work with an estate planning attorney and set up a way to properly disburse money to both boys. It is simply dangerous to make one child trustee over the other’s money, for if you make one child gatekeeper over money going to the other sibling, this creates ill will, or worse.”
“A professional fiduciary becomes the gatekeeper, following guidelines in the trust document or will. That way, if a child feels that he or she isn’t getting enough money, they are angry with us and not their other family members,” Kennedy points out.
Reach for the Chateau Lafite Rothschild
When we think of some of the wealthiest families in history – aside from Gates or Buffett – the name Rothschild might come to mind. This European dynasty was the Rockefeller or Ford of their day in the last century, best known today for producing one of the world’s finest wines, Chateau Lafite Rothschild.
Some years ago, Baron Guy de Rothschild wrote his autobiography, “The Whims of Fortune.” I spent an incredibly interesting hour interviewing him for a weekly radio show I hosted. After receiving John’s e-mail, I listened to a recording of that broadcast. In it was a message for my reader:
“There is an odd thing about money,” the baron stated. “For most of us, fate dictates that much of our working lives will be taken up with earning enough to correctly provide for our families, with little, if anything at all, remaining after our death to give away. But for some, inherited wealth – small amounts or fantastic sums – can easily become a curse, tearing families apart. Who you select to stand in your financial shoes can be one of the most important decisions you will ever make.”
Next time: The doctor told you the truth. Get your financial affairs in order. It’s easier than you might think, and we’ll help.
Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.