Cannon Financial Institute

A Grantor and His Trustee, Remainderman, and Fiduciary Investment Manager Meet at a Wine Tasting

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“What do you do? Stand around? I hope I’m not paying you to loaf,” says the grantor, Mr. Gotbucks, to his standby trustee.

“Gentlemen, please be calm and try this Merlot,” says Daniel Smith, Cannon Executive Vice President and Personal Trust Curriculum Chair.

“It’s a 2011 Chateau Laffitte Laujac, a blend of reds from vineyards in Bordeaux and Medoc.”

 Both men take a glass and the grantor knocks his back. “Please answer the question,” he says again to the standby trustee. “What do you do and are you charging me for it?”

The standby trustee takes a small sip of wine. “Very good,” he says to Daniel, “a delicate aroma of red fruits, très élégant.”

He turns to Mr. Gotbucks, who has knocked back another glass even though this is supposed to be a wine tasting. “Sir, you are not paying me and I hope you never shall. Were I to receive payment from your trust that would signal I have been compelled to assume my standby powers because you have been deemed too incompetent and therefore cannot manage your affairs.”

“Incompetent! That will never happen to me!”

“Hopefully not. Nonetheless, since you have named me as your successor trustee, I am also your standby trustee. Should you become unable to manage your affairs during your life, then being the standby trustee, I assume the powers of successor trustee.  Usually, your personal trust document will specify how you will be deemed incompetent. Common legalese reads something like: ‘if two or more medical doctors licensed to practice medicine (in your state) deem me incapable of managing my affairs, then my standby trustee will assume the powers of the successor trustee.’ This avoids an incompetency hearing in public court before a judge.”

 “Perhaps that is a sound idea,” Mr. Gotbucks says. “Daniel, how about another bottle of merlot?”

“Actually, I want to present an amusing 1986 Bordeaux from Chateau Lafitte St. Emilion. It has a lightness to it but is still hefty in its flavor with a delicate aroma of blackberry.”     

Mr. Gotbucks drinks a few glasses then notices five younger people who seem to shimmer. “Who in the world are you?”

“We are your great-grandchildren from the future and the remaindermen of your trust and we thank you for your generosity.”

 “What?”

“As you know great-grandfather, a personal trust cannot continue indefinitely. Eventually, the trust you have set up for the benefit of your extended family and their families and so forth will come to an end. The money which remains in the account will come to us which is why we are called ‘remaindermen.’ Get it?”

Mr. Gotbucks rubs his eyes. “This is complicated. Why do you think there will be money left?”

“Because the trust doesn’t disperse principal to the beneficiaries except in an emergency. It is set up to ensure your beneficiaries for three generations will have generous incomes so there should be funds remaining in the account.  If there is nothing left, then we will file a lawsuit against the trustee.”

Much head scratching occurs. Daniel opens a bottle of French burgundy, a heavy wine best drunk in a serious discussion. “Excuse me,” says a man heretofore not identified, “I’m a fiduciary investment manager associated with your standby and successor trustee, the First National Bank and Trust Company of Happy Valley, Florida. It is my job—and the job of those who come after me— to protect the interests of everyone who will— or could— benefit from your trust including these annoying great-grandchildren of yours.”

Mr. Gotbucks takes the bottle of burgundy from Daniel and starts swigging from it. He thinks a moment then says, “if you and your colleagues manage the assets poorly and there is almost no principal remaining in the account, then my remaindermen can file a lawsuit against you?”

“Exactly. So, we keep that in mind when investing.”

 Mr. Gotbucks looks at Daniel. “Are all these people necessary?”

“Yes, they are. But think about it this way, your great-children, will lift their glasses to your portrait on a regular basis and say, ‘thanks, great-grandfather.’”

Mr. Gotbucks wipes a tear from his eye while Daniel opens a bottle of champagne so the remaindermen can practice their toasts.

To learn more about this topic, register for our Cannon Trust I curriculum. 

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Contributing Writer: Subject Matter Expert Charles McCain

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