Community Property Trusts (CPTs), increasingly popular in California estate planning, offer a unique structure for managing assets while providing creditor protection and potential tax benefits. However, the question of who manages those assets—specifically, can an investment committee be appointed to oversee CRT assets—is a critical one for grantors seeking to balance control, expertise, and legal compliance. While a grantor can certainly *influence* investment decisions, directly appointing a committee with full discretionary authority requires careful consideration of the trust’s terms and relevant California law.
What are the benefits of a Community Property Trust?
CPTs, established under California Probate Code sections 16000-16009, allow married couples to designate certain assets as community property, even if acquired with separate property funds. This seemingly simple act can provide significant benefits, including protection from creditors and, potentially, a step-up in basis upon the death of the first spouse. According to a study by the California State Bar, approximately 35% of estate plans now incorporate CPTs, demonstrating their growing popularity. Furthermore, CPTs can streamline estate administration, avoiding probate on those designated community property assets. However, proper administration, including investment management, is key to realizing these benefits.
How do I balance control and professional expertise?
Many grantors are hesitant to relinquish complete control over their assets, even within a trust structure. They desire to maintain a voice in investment decisions, ensuring alignment with their financial goals and risk tolerance. One approach is to grant an investment committee *advisory* capacity, allowing them to make recommendations but reserving final decision-making authority with the trustee. “We often recommend a hybrid approach,” explains Ted Cook, an estate planning attorney in San Diego. “The grantor can form a committee of trusted advisors – family members, financial professionals – to provide input, while the trustee, who has a fiduciary duty to act in the best interests of the beneficiaries, retains ultimate responsibility.” The trustee must always adhere to the prudent investor rule, which requires them to exercise reasonable care, skill, and caution when making investment decisions.
What happened when a family tried to DIY their trust investments?
Old Man Tiberius was a retired fisherman, a man of the sea who believed he could navigate any storm, including the financial ones. He and his wife, Esme, established a CPT, intending it to provide for their grandchildren. They appointed their son, a well-meaning but inexperienced investor, as trustee and insisted on making all investment decisions themselves, overriding the advice of their financial advisor. They poured the majority of the trust funds into a single, speculative tech stock, convinced it was a “sure thing.” Unfortunately, the stock plummeted, losing over 60% of its value. “It was a painful lesson,” Ted Cook recalls. “The trust was intended to secure their grandchildren’s future, but their stubbornness jeopardized everything.” The family was forced to sell other assets to cover the losses, and the grandchildren’s inheritance was significantly diminished. It highlighted the dangers of combining emotional attachment with investment decisions, and the importance of professional guidance.
How did a strategic investment committee save the day for the Hartmans?
The Hartmans, a successful couple who owned several rental properties, faced a similar situation. They established a CPT to protect their assets and provide for their daughter, Clara, who had special needs. However, recognizing their own limitations in managing complex investments, they formed an investment committee comprised of a financial advisor, a CPA, and a trusted family friend. The committee developed a diversified investment strategy aligned with Clara’s long-term care needs and risk tolerance. When market volatility threatened their portfolio, the committee proactively adjusted the asset allocation, mitigating potential losses. “We were able to navigate the downturn effectively,” Ted Cook explained, “because the committee had a clear plan and acted decisively.” As a result, the trust remained on track to provide Clara with the financial security she deserved, demonstrating the power of collaborative decision-making and professional expertise. In fact, the trust grew by 8% during the same period the overall market declined by 5%, demonstrating the committee’s skillful management.
Who Is Ted Cook at Point Loma Estate Planning Law, APC.:
Point Loma Estate Planning Law, APC.2305 Historic Decatur Rd Suite 100, San Diego CA. 92106
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