Michael Ford (post until Oct. 31/19)
Estates & Wills & Trusts, Tax

Trustee duties extend to relational, financial issues

For trustees, the ability to manage a trust’s tax and investment needs is vital – but a focus on relational issues among stakeholders is also key to effectively managing succession, Calgary tax and fiduciary services lawyer Dennis Nerland tells AdvocateDaily.com.

As Nerland, a founding partner of Shea Nerland Law and leader of the firm's tax and estate planning practice explains, while trustees were once only tasked with conventional financial responsibilities, their role has expanded to include more personal aspects.

“The new paradigm is really a new foundation for tapping into the wisdom of the trustees. The old model revolved around financial factors and emphasized the traditional financial duties of the trustee. The new approach expands this thinking to relational aspects and ups the trustee bar to one of regency,” he says.

“The financial focus to manage tax and investments is paramount both in the new paradigm and the old. The bigger issue and focus in the new model are the relational issues among the various trust stakeholders. More often than not, relational issues, rather than financial issues, are responsible for failed succession. The contrasting example of the Rockefeller and the Vanderbilt families exemplifies this,” adds Nerland.

Also, he explains, trustees and beneficiaries currently face challenges in the low interest rate environment, in terms of meeting distributions and preserving capital.

“The low interest rates make it difficult to eke out returns beating inflation plus a delta after taxes and expenses on a risk-adjusted basis. That said, there is scope in the new paradigm to swap concentration risk for debt risk and take advantage of low borrowing rates to help this capital erosion problem,” says Nerland.

Recent tax law changes will also likely affect trustee behaviour.

“A solid tax focus is one of the trustee’s classic duties and that fact has not, nor will it change. The Trustee Act is changing in Alberta however — no one knows exactly when — and it is expected to have heightened prudent investor guidelines,” Nerland explains.

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