Introduction

LegalEdge Innovators recognizes the limitations of traditional estate planning in providing adequate guidance to fiduciaries, particularly those chosen from within the family who may lack legal or financial expertise. Traditional estate planning documents often rely on outdated, boilerplate trustee powers and administrative provisions that fail to reflect innovations in financial services, new investment products, and the rise of robo-advisor platforms.

The Property phase of the EPIC framework aims to address these issues. This phase provides attorneys with the opportunity to offer valuable advice and counsel to family leaders, helping them build and protect family wealth. By leveraging trust advisor statutes, attorneys can guide families on trust operations and investment performance, ensuring that trust agreements are tailored to contemporary financial realities.

The Challenge with Traditional Estate Planning

Inadequate Direction for Fiduciaries

Many fiduciaries, especially those chosen from within the family, are not versed in legal or financial matters. Traditional estate planning documents often fail to provide the necessary direction, leaving fiduciaries ill-equipped to manage and grow family wealth effectively.

Stagnant Trustee Powers and Provisions

For decades, boilerplate trustee powers and administrative provisions have been recycled without significant updates. These provisions do not reflect the latest developments in financial services, investment products, or technology platforms like robo-advisors.

The Opportunity: Trust Advisor Statutes

Advising and Counseling Family Leaders

Trust advisor statutes present a unique opportunity for attorneys to take on the role of trust advisor, providing ongoing advice and counseling to family leaders. This role involves guiding the family on the trust’s operation and performance, particularly in terms of investments.

Essential Provisions for Modern Trusts

To fulfill this role competently, trust agreements should include several key provisions:

• Restricted Asset Types: The trust creator’s guidance on restricted asset types, such as cryptocurrencies, options, and other complex investments, should be clearly outlined.
• Investment Policy Statement (IPS): A comprehensive IPS should be included in the trust agreement. This statement provides the trustee with detailed guidance on investment strategies, asset allocation, and risk management.

Appointment of Drafting Attorney as Trust Advisor

The drafting attorney should be appointed as the trust advisor to oversee and monitor the family’s wealth-building process. This appointment allows the attorney to:

• Monitor Investments: Regularly review investment performance and ensure adherence to the investment policy statement.
• Advise on Innovations: Keep the family informed about new financial products and services that could benefit the trust.
• Ensure Compliance: Ensure that all trust operations comply with the trust creator’s intentions and legal requirements.

The Role of the Investment Policy Statement

Guiding Fiduciaries

The investment policy statement is a critical component of modern trust agreements. It serves as a roadmap for fiduciaries, providing clear guidelines on how the trust’s assets should be managed. Key elements of an effective IPS include:

• Investment Objectives: Clear articulation of the trust’s investment goals.
• Asset Allocation: Detailed guidance on how to allocate assets among different investment categories.
• Risk Tolerance: Specifications of acceptable levels of risk.
• Performance Metrics: Criteria for evaluating investment performance.

Aligning with Family Goals

An IPS ensures that the trust’s investment strategies align with the family’s broader financial goals and values. It provides a structured approach to managing the trust’s assets, helping to protect and grow family wealth over time.

Handling Investic Provisions in the Property Phase

Client Input and Fine-Tuning

LegalEdge Innovators’ drafting app allows clients to fine-tune investic provisions through an intuitive client UI. This process ensures that trust agreements are highly personalized and relevant to the client’s specific needs and goals.

Introduction to Trustee’s Powers

Section 16.1: Introduction to Trustee’s Powers

The Trustee is granted the authority to exercise the powers outlined in the trust without prior court approval, including those powers provided under the laws of the State of {StateSitus} or any applicable jurisdiction. The Trustee is expected to act in the beneficiaries’ best interests and must not exercise any power that conflicts with the beneficiaries’ rights to enjoy the trust property. Trustees are encouraged to seek appropriate legal advice if they have questions about their duties and responsibilities.

Section 16.2: Execution of Documents by Trustee

The Trustee is authorized to execute and deliver any written instruments necessary to carry out the powers granted in the trust. If confirmed, the following section applies:

Section 16.3: Investment Powers and Policy Statement

The Trustee must adhere to the Investment Policy Statement (IPS) specified in the trust. The IPS outlines the types of assets and investments to be maintained, along with their respective percentages. The aim is to provide clear guidance on investment strategies and asset allocation.

Investment Allocation and Management

The trust’s investments are managed with the goal of asset preservation rather than high-risk growth. The Trustee should follow these benchmarks:

• Fixed Income Investments: 15%
• Government Bonds (including municipal bonds): 25%
• Corporate Bonds: 40%
• Stocks: 20%
• U.S. Large Cap: 25%
• U.S. Mid Cap: 25%
• U.S. Small Cap: 25%
• International: 25%

Benchmarks and Performance

The trust’s assets should be compared annually to performance benchmarks:

• 75% of total trust assets: Compared to the Barclays Capital Aggregate Bond Index
• 25% of total trust assets (invested in stocks or stock equivalents): Compared to benchmarks like Morgan Stanley Capital Investments ACWI, Russell 2000, and Russell 3000, depending on the investment type.

Time Horizon

The primary goal is for the trust’s assets to pass to the beneficiaries after the trust creator and their spouse pass away. Income-producing investments are not necessary, and any dividends or interest income should be reinvested.

Tax Efficiency

To minimize unnecessary taxation, the Trustee is encouraged to invest in tax-efficient options such as municipal bonds and tax-deferred investments, including annuities, life settlements, and structured promissory notes. The Trustee should also be mindful of hidden fees and costs associated with mutual funds and other investments.

Investment Types

The drafting app specifies permissible and restricted investment types within the trust:

• Permissible: Bank products (e.g., CDs), currencies (arbitrage), investment funds
• Restricted: Options, annuities, futures, insurance, complex investments, cryptocurrencies, reverse convertibles, secured promissory notes, raw land, unsecured promissory notes, real estate investment trusts, commercial real estate, commercial leases, residential rental property, recreational real estate (e.g., time shares)

The following are guidelines for investment types within the trust. Each type can be set to inclusion or exclusion as an investible asset by the trustee:

• Options
• Annuities
• Futures
• Insurance
• Currencies (arbitrage)
• Complex Investments
• Cryptocurrencies
• Investment Funds
• Reverse Convertibles
• Bank Products (e.g., CDs)
• Event-Based Bonds
• Secured Promissory Notes
• Raw Land
• Unsecured Promissory Notes
• Real Estate Investment Trusts
• Commercial Real Estate
• Commercial Leases
• Residential Rental Property
• Recreational Real Estate (e.g., time shares)

Trustee’s Duties

The Trustee is expected to exercise reasonable care and skill in selecting and retaining trust investments. Considerations include potential return, income tax consequences, volatility, and the role of the investment in the trust’s portfolio. The Trustee should also consider the effects of inflation or deflation, economic conditions, transaction expenses, and the trust’s liquidity needs. The Trustee may delegate investment management to a registered investment advisor or corporate fiduciary, provided total fees do not exceed 0.75%.

Conclusion

The Property phase of the EPIC framework offers a modern approach to estate planning, addressing the limitations of traditional methods. By incorporating detailed investic provisions and leveraging trust advisor statutes, LegalEdge Innovators empowers attorneys to provide ongoing guidance and ensure that trust agreements are relevant and effective. This approach helps family leaders build and protect their wealth through informed, strategic decisions, ensuring the estate plan remains dynamic and responsive to contemporary financial realities.