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.