According to farm families, one of the most important goals in estate planning is for their wishes to be carried out and their family members to get along when they are gone. In other words, they want their family to remain family and the business to remain a business. With that in mind, it is always a good time to discuss new ideas in the law of estate planning — and new ways to protect your wishes when you are no longer living.

As we have discussed before, one of the most common types of trusts is the revocable trust, oftentimes referred to as a "living trust." One of the main benefits of trust planning is that probate may be avoided if the trust has been set up and properly funded, and assets retitled appropriately. A revocable trust can also be amended, changed or revoked at any time during the life of the grantor of the trust. Revocable trusts are also confidential — and, if properly drafted, can help avoid potential family conflicts.

The successor trustee

The grantor of the trust typically serves as the initial trustee along with their spouse. Some parents choose one or more of their children to serve as successor trustees when they become unable to serve, are disabled or die. Some choose to appoint an independent third party, such as a trusted adviser or corporate trust department to serve in that role. The independent successor trustee is most often compensated for their time, based on either a percentage of the assets or a set fee schedule. Traditionally, one question I typically get during this discussion of appointing successor trustees is, "If we appoint one or more of our children to serve in the trustee role, what happens if they disagree, or the beneficiaries do not approve of their actions? I want to ensure that my wishes are carried out, and I wonder if someone could step in to given them direction."

What is a trust protector or trust director?

There is no foolproof plan. We are all human, and our interpretations may differ. That is why I wanted to discuss a relatively new concept in the law — a "trust protector" or "trust director" — sometimes referred to as an "administrative trustee" or "directed trustee." In July 2020, Iowa's new Directed Trust Statute provided an avenue for those families who wanted to assign certain "management" roles, such as investment or distribution decisions, to a third party or family member with a financial background. This is often referred to as a "trust director" in Iowa. As for a "trust protector," Iowa Code Section 633A.4865 specifies that a trust protector's powers may extend to certain activities, such as modifying or amending the trust due to tax changes. There has been a lot of talk regarding tax changes at the federal level that may affect farm families, so appointing a trust protector to analyze those areas may be wise. Additionally, a trust protector may have the power to interpret terms of the trust, protect beneficiary interests, replace trustees and trust directors, and appoint successors to roles designated in the trust, among other things. 

Laws differ by state

The laws regarding trust protectors differ among the states. Remember, this is a new area of the law. If you or your family are interested in this concept or exploring a protector or third-party trustee further, it would be a good idea to set up an appointment with your local attorney to discuss the options you may have and a plan that achieves your family's objectives.  Protecting your intent and the way you want to leave your assets is important.

Every family is unique, and even the best communicators can have disagreements. We all know the best way to avoid family conflict is to communicate. As I have said before, there is no substitute for planning and doing that as a family. Every family has a certain comfort level in involving kids, grandkids, off-farm heirs, on-farm heirs, in-laws, etc., in the plan. However, many planners have found that involving the essential parties in the plan from the beginning, most especially the heirs or parties that will carry on the farming business, helps avoid communication issues in the future.

In my observations, the families that plan together, stay together.

Herbold-Swalwell is with Parker & Geadelmann PLLC. Email her at [email protected].