Recent Developments
o Foreign Asset Protection Trust (FAPT). A common planning goal is "old and cold". If something has been in place for years, it's more likely to "fly". Well, not always. In a recent case U.S. v. Grant, (U.S. Dist. Ct. So. Fla. 9/2/05) the court ordered the repatriation of assets that had been offshore for 20 years. What went wrong? The grantors who established the trusts retained the "unreviewable discretion" to change trustees to new trustee "anywhere in the world". The grantors had too much control over the assets given away. How much control is too much? There is no clear answer. The plethora of powers a grantor can retain control over, including the naming persons to serve in various fiduciary and quasi-fiduciary functions (e.g. investment adviser, distribution committee), each increases the risk of a FAPT, or even a domestic asset protection trust, may be pierced for claimants. Bottom line: old and cold is good, but the less control the better.
o Investments: If you are a fiduciary investing trust, estate or a ward's assets, you must exercise caution to document the investment decision making especially when holding a concentrated stock position. In a recent case, Estate of Charles G. Dumont, 791N.Y.S.2d 868 should, although the charge against the corporate trustee was reversed, serve as another reminder to fiduciaries. The Prudent Investor Act governs how fiduciaries invest. You can be held liable if you don't handle investments properly. The standard is one of process not outcome. You don't have to realize a great investment performance result, you have to properly document why you made the investment decisions you did. For non-financial professionals serving as trustees, an annual meeting for the trust and a periodic review by an independent planner or manager issuing a written report, is clearly advisable. Don't ignore the documentation process simply because the trust is holding a family business asset instead of marketable securities.
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