This week we share a perspective on California trust conflict avoidance from Chris Ann Bachtel, who is a Senior Vice President and trust manager at First Northern Bank, a regional bank founded in 1910 with branches across Northern California.
Tell us about your background.
I majored in Speech Communications and Theater at Wake Forest University. Despite that major, I entered the business world immediately after graduating. Nearly 34 years ago I started as an Administrative Assistant in Wells Fargo’s Santa Barbara Trust Department. I was a quick study and learned to love the business (or loved to learn, I should say). I have handled every aspect of trust work through the years – operations, administration, compliance, and a lot of business development.
Fifteen years ago, I was asked to start the trust department by my current employer, First Northern Bank. Since then we have remained the only locally-headquartered trust department in the Sacramento Region. Our trust department consists of myself, my colleague Alysia Corell, operations staff, and a portfolio management team. Alysia and I are Certified Trust and Financial Advisors.
What do you enjoy about working with families on administering trusts?
Serving as a trustee is endlessly fascinating. You become privy to everything involving family dynamics. Are there favorite children? Hidden assets? Secret liaisons that produced secret descendants? On a positive note, we have the ability to bring order to what can be a confusing and often misunderstood part of life, the passing on of family wealth. Oftentimes we become involved at the most tragic time for the family, at a parent’s death. So, we need to be particularly sensitive to the family’s sense of loss, their fears, and their confusion. It is a complex time, and I have often been told that our professional trust services brought peace to a family in that we were there to explain what needed to be done and executed on it.
How can First Northern Bank help avoid conflicts over trust administration?
If a family member serves as trustee, conflict is more likely to arise over actual or perceived conflicts of interest given that most family member trustees are also beneficiaries. Many nonprofessionals don’t have the skill set or time needed to complete trust administration in a prudent and prompt way. Accordingly, rather than burdening a family member with the role of trustee, our clients find comfort entrusting that role to us. We can step in to handle the trust if the creator of the trust (known as the “trustor”) becomes incapacitated, and we will be there to square things away after the trustor passes.
When First Northern Bank serves as trustee or investment agent, we adhere to the highest standards of fiduciary duty, a duty to the current beneficiaries and to those who will inherit the assets at the trust’s termination. Our objectivity, duty of loyalty, professional standards, and the terms of the documents we administer generally provide all that we need to be certain that the wishes of the trustor are carried out as intended. We avoid conflict by having open communications with all interested parties. We explain the process of administration to all beneficiaries of the trust. Monthly or quarterly we provide informative, detailed statements. We deal with questions and concerns immediately. We might hold a family meeting if there is conflict among its members. On rare occasions, if there is ambiguity in an aspect of administration, we may seek the court’s opinion.
Can you give me examples where you helped avoid problems?
Yes, a few situations come to mind.
Years ago, an 85 year-old woman came to my office and told me that her husband had died three years earlier and that she hadn’t had a solid night’s sleep since. She was the sole surviving relative of two developmentally-disabled adult sons, and her estate was large. The sons were in work programs but could not take care of their basic needs. Once I explained how the trustee would work in tandem with a case manager and caregivers, hired and paid by the trustee, she was immeasurably relieved. She wrote me a letter a few weeks later saying that she had signed her trust agreement, and for the first time in years she had peace of mind and slept soundly. In the absence of family members who have the time and resources to oversee the care of individuals with special needs, a professional trustee accustomed to working with affiliated professionals is a wise option.
We have helped families when the trust documents reflect concerns about substance abuse by one or more of the beneficiaries. In this situation, a professional trustee who can oversee periodic disbursements from the trust, and even require drug testing, can provide a structure that encourages a healthy lifestyle. When a family member trustee would be in an awkward position, choosing a professional trustee with the ability and obligation to objectively enforce the provisions of the trust makes perfect sense.
And here’s a story of a “Eureka” moment involving a deceased trustor who left few records behind. We had pegged the trust value at the modest amount of $265,000. After obtaining tax records and performing detective work, we found that the decedent died owning 100 shares of Berkshire Hathaway stock. The fair market value of this stock at the time was well over $2.5 million! A nonprofessional trustee might not have uncovered it, or might have found it much later, which would have presented a variety of tax and other distributive issues for the beneficiaries.
What myth can you debunk about bank trust departments?
This one is easy – the myth that trust departments and professional trustees are expensive. Frankly, we are a bargain when you consider the technical expertise received from experienced professionals. Our services run the gamut, from finding homes for pets to sophisticated tax, estate, and investment planning. From the time I started in this business many years ago, professional trustee compensation has increased only about half a percent!
Our comprehensive services (which include more areas of expertise than this space allows) can easily cost less each year, on a percentage basis, than the annual fees charged by a mutual fund. The challenge is that many people don’t know how much they are paying for investment management and mutual funds. In contrast, the trust industry applies an annual percentage to the value of the assets and debits the trust periodically. I call this an explicit fee structure. Others may charge what could be considered “implicit” fees. Because our compensation is so transparent, we appear to be costly. However, just the opposite is true, especially when you consider that due to our expertise we often do not hire ancillary professionals, as a lay trustee might need to do, thus decreasing the costs of our administration.