August 2017 eNewsletter

How to Trust Administration of a Trust

Tom Schiller, CPA, Plante Moran

Trust administration and estate settlement can be daunting. It’s one thing to accept this position of honor in theory — it’s another to carry out the myriad of responsibilities at hand. So what’s the best option? Family member? Trusted advisor? Professional trustee?

What Are a Trustee’s Roles and Responsibilities?

A critical component of any estate plan is selecting an appropriate trustee. There are several options, most commonly, a family member, a trusted advisor, or a professional trustee. While virtually any adult could serve as trustee, the role comes with significant responsibility. Trustees must be able to:

  • Perform comprehensive document review and file documentation for assured compliance with all trust provisions.
  • Provide regular communication and accounting to all beneficiaries.
  • Calculate and disburse income and other distributions.
  • Collect benefits and pay bills, as well as notify potential and known creditors.
  • Inventory and value trust assets.
  • Manage income and principal cash, using discretion appropriately and fairly.
  • Select and monitor investments for the assets, or partner with a professional firm to manage investments.
  • Develop an investment policy statement that is consistent with the trust’s purpose.
  • Minimize taxes and ensure that all tax returns, including 1041s and estate tax returns, are filed in a timely manner.
  • Handle special assets such as real estate, partnerships, and family-owned businesses.
  • Seek legal interpretations when necessary to ensure that both intent and wishes are met.

A good trustee must come equipped with unquestionable ethics, financial savvy, orderly recordkeeping skills, and sensitivity to emotional and financial needs. Add to these requirements someone who truly knows what a trustee’s duties and responsibilities are, someone who will do so efficiently and economically, someone who has the time, and most importantly, someone who is willing to act as trustee and will continue to do so in the future.

Family Member

A family member could be part of the immediate or extended family. It should be someone with sound judgment and dependability. As a trustee, they cannot favor one beneficiary over another, assets cannot be used for the trustee’s benefit, and assets must be kept separate.


  • Understands the family dynamic.
  • Can facilitate meetings and encourage communication among family members.


  • Can disrupt family harmony, with real or perceived conflicts of interest.
  • Might not have the requisite expertise and/or time to carry out the administrative components necessary to serve as trustee.
  • With lack of experience and/or time comes cost — from family investment advisors to CPAs to property managers. In the end, this could be more expensive than hiring a professional trustee to oversee all aspects of estate settlement.
  • Lack of continuity for future generations.
  • No oversight/checks and balances to ensure estate plan goals/objectives are met.

Trusted Advisor

A trusted advisor could be an attorney, financial planner, or other member of a family’s inner circle.


  • May understand family history, dynamics, and objectives/goals.
  • More fully aware of grantor’s original purpose and intent. This is critical to trust administration.


  • Possibly lacks the time, energy, or resources to fully attend to roles and responsibilities, as this is likely the individual’s “second job.”
  • May not have experience or an understanding of the responsibilities associated with being a trustee (especially regarding investment oversight); this could be a burdensome responsibility.
  • Continuity for future generations could be interrupted.
  • No oversight/checks and balances to ensure estate plan goals and objectives are met.

Professional Trustee

A professional trustee can be found in traditional banks, family-owned private trust companies, or in independent wealth management trust companies.


  • Peace of mind that the grantor’s directions will be carried out according to the estate plan by an unbiased professional.
  • Sophistication — professional trustees will have the right resources to provide for your family, even beyond estate management as they address succession planning, charitable gift planning, budgeting, and more.
  • Grantor’s wishes are executed securely and privately, without disrupting family harmony.
  • Oversight — professional trustees are subjected to state examination, audits, and have dual controls in place to ensure accountability.
  • Convenience and continuity with current family advisors.
  • Overall costs are consolidated, controlled, and leveraged by a third-party service provider, typically resulting in savings.


  • Possibility of getting “locked into” a particular professional trustee.
  • May not have the same level of relationship with the family as a friend or trusted advisor.
  • Cost is often perceived as prohibitive, or simply misunderstood.

As you can see, each option has its advantages and disadvantages. It’s important to remember, however, that the best answer could be a combination of trusted advisor and professional trustee, or friend and professional trustee. Choosing the right trustee or co-trustees for your estate plan is critical. However, understanding the responsibilities that accompany the role, as well as the potential pros and cons associated with a friend, trusted advisor, and professional trustee will allow you to open discussions to ultimately arrive at the best decision for you and your family.

Value Drivers - Key Elements in Family Business Exit and Transition Planning

Crystal Faulkner & Chuck Stevens, Partners, MCM CPAs & Advisors

For many business owners with an eye on retirement or partial transition out of the company, their company is their largest asset. Regardless of how an owner intends to transition (and there are many options), they will be better off if they can maximize their company’s value. Driving company value provides far more options during a transition than might otherwise be available. As CPAs certified in Business Exit and Transition planning, the first piece of advice we typically offer to clients looking to transition is to put themselves in the shoes of a prospective buyer. If someone is evaluating their company for purchase, they want to minimize the risks on their end, and one way they do this is by reviewing the value drivers.

Value drivers are attributes that either reduce the risk associated with buying your business or enhance the prospect that your business will grow significantly in the future. Ultimately, these drivers increase value and provide the justification for a premium price, which in turn provides the owner with options when the time is right to retire.

Value drivers vary business to business; however, there are several common areas prospective buyers will evaluate when determining what they believe a business is worth.

Cash flow and financial performance

To a potential buyer, stable and predictable cash flow is critical. In order to bring a premium price for your business, you must establish a pattern of growth over a consistent period of time. In addition, recurring revenues provides a level of predictability not present when every project involves a unique customer or engagement.

It is necessary to have a written business plan and a budget. Buyers will want to know if the growth strategy is realistic. Will it achieve the projected financial results? Are gross margins and pre-tax profits above or below industry averages and are they sustainable? Are the financial statements readily available and understandable? Reliable financial records are vital to any transaction.

Customer and product diversity

What would happen if the company were to lose its highest paying customer or client? It’s important to have a broad customer base where no single client accounts for more than 10 to 15 percent of the total revenue. Having a diverse customer base will help reduce the risk of serious cash flow issues if one or more customers leave; which leads us to the next issue – product and service diversity. Does the company offer a variety? Are the products and services unique and up to date? What differentiates this company from its competitors?

Human capital

Potential buyers are looking to buy the business, not the owner; which means the company needs a strong management team and key employees who want to stay for the long term. This may seem like a no-brainer if there is currently a great company culture in place, but when leadership changes, often so does the work environment. With this in mind, now is a good time to consider or review employee agreements and incentives. In addition, a future leadership team should be identified (and groomed if necessary).  Having a capable and reliable team in place that can provide continuity and assist in the growth of the business under new ownership is of the utmost importance in attracting a buyer.  

Standardized and documented systems

The development and documentation of standard business procedures and systems demonstrates to a buyer that the business can be maintained profitably. Take the time to review, document and standardize the processes used to generate revenue, control expenses and increase productivity. In addition, ensure that any business contracts, documents, files, etc. are organized and easily accessible. Implementing and maintaining the operating systems and procedures will help sustain future business growth.  

Office environment and equipment

What does the office look like? Is it inviting, comfortable and organized? The office and the areas within it (warehouse, copy/file rooms) should be well maintained to realize maximum value. Seeing disorganized or poorly maintained facilities and equipment might cause a potential buyer to perceive that other aspects of the business may be similarly disorganized. Make a great first impression by having everything in its place when it comes time to sell—just as we do with residential homes.  

To successfully increase the overall value of a business, it is essential to plan ahead. Identify and enhance the value drivers well in advance of any anticipated sale and business owners can set themselves up for financial freedom in retirement. The more options and choices available when selling or exiting a business, the more likely a business owner will achieve their personal and professional financial goals.

Should A Business Lease or Buy Its Facility?

Eric Joo, Chief Operating Officer, Schueler Group


Almost every business is confronted with this dilemma at some time, and it’s amazing how many times I’m asked to perform a financial analysis to determine the best course of action. Ironically, we all also get pulled into conversations discussing whether it’s best to own or lease a car, purchase a home or rent an apartment, and even what stocks to buy. Hmmm…

After 25 years in the commercial real estate industry spending too much time working on spreadsheets, the analysis has become easy – the actual decision is a little harder. What I have learned over the years is that the business decision to purchase or lease its real estate is more of a qualitative decision than a quantitative one. Yes, we can perform an after-tax cash-flow comparison and corresponding net present value incorporating the loan terms, cost of capital, lease terms, appreciation, depreciation, opportunity cost, your incremental tax rate, and even the price of tea in China.

However, the real question is how the decision impacts and advances the strategic goals of the company. Consider the home purchase or apartment rental analogy. Imagine a recent college accounting graduate (unmarried) starting his first career position in a CPA firm located in a relatively slow growth city. He (or she) sees themselves gaining some knowledge in the firm for a few years, but someday, becoming a CFO in a cutting edge high-tech industry. Most of us would advise him to rent instead of buy for all the obvious reasons. Now, let’s assume he is a pretty good handyman and stumbles upon a duplex at an estate sale in a decent neighborhood for a great price and likes the entrepreneurial idea of leasing the other half of the duplex to cover the mortgage. Some now might advise him to buy, while others might still say to focus on your career at this early stage and not get distracted with managing a tenant. Hmmm… we didn’t even perform an analysis.

Consider just a couple of thoughts before sending your CFO off to create a spreadsheet.

First and foremost, what do you imagine your company to be like in 5 or 10 years?

Will your future business be twice its current size with twice its employees? Will your current facility suffice? Will your business require significant capital or investments? Are you preparing to sell the business and will the added cost of real estate help or hinder the marketability of your business? I’ve talked to many owners whose real estate ownership has become a liability – not an asset.

After thinking critically about the future (you), if the decision to lease or buy isn’t already clearer, consider the current condition of your company.

What lifecycle stage is your business in? What is your credit? Is capital currently plentiful or scarce? Since businesses and buildings are valued differently, will a capital infusion in your business generate more cash flow than investing in real estate might save you in higher lease payments? What is your current risk tolerance? I’m assuming you’re an expert in your industry. How well do you know the real estate industry?

Now, if you’re still uncertain, think about the current market condition or economic environment.

What is the general economy like? Are you in a stable, growing or declining economy? What real estate cycle are we in? What is the existing building inventory (for lease and sale) and planned new construction? What are the demographics of your city? Is it growing, stable or losing population?

Finally, discuss your vision, current condition and the market with your CFO and a trusted, local real estate professional who can help you critically evaluate the advantages and disadvantages of owning or leasing real estate, selecting a location, designing a new building or purchasing an existing one, crafting lease terms congruent with your business plan, negotiating municipal financial incentives, and other real estate considerations.

Now, you can send your CFO off to create a spreadsheet and analyze your alternatives within the guidelines of your business plan.

Opportunities for Success: Transforming Family Business into Generational Wealth

Joe Davis, Associate Principal, MLA Companies

In closely held businesses, one of the most difficult experiences is the transfer of the business from one generation to the next.  There are many opportunities to transfer the business successfully; however, there are also many opportunities to squander what has been built.

To successfully transfer the business to new leadership there are many key elements that will aid in a smooth transition from generation to generation.  Desire, trust, and the ability to let go are essential attributes that must be present if the business will be sustained through the generational transformation thus creating generational wealth.


How many times have you seen a business suffer after being taken on by the next generation? The most critical aspect for transferring family business from one generation to the next is for the new leadership team to possess the true desire, competency, and “fire in the belly” to take on the business.  Often the desire of the incoming leadership is a result of an understanding that the transfer is a result of a formidable path that was destined to take place because of their relationship; but without true desire to operate the business to its maximum capacity, the business, and those within, will suffer.

The successor must be the right fit for the position, and possess the knowledge, passion and commitment to the business to keep it heading in the right direction.  It is also critical for the successor to have the desire and foresight to continue implementing new ideas, adjusting to new market forces, and developing business practices that will allow for long-term growth and sustainability.   Having the right desire for the position will lead to innovative thinking, growing sales and a transformed business.


The intermediary key to a successful transfer is to build trust.  Trust needs to be built not only with the one(s) to whom the business is being transferred, but also within and among those who will continue with the new leadership team.    

It is often thought that trust must be built over time; however, most often trust is an innate characteristic of oneself that shines through his or her leadership.  To gain trust, one must first be willing to trust those around them and lead by example.

"The best way to find out if you can trust somebody is to trust them."
-Ernest Hemingway

Letting Go

Finally, a successful transfer of closely held business to the next generation will include the “old guard” letting go.  Often, this is the most challenging step of the transformation process, particularly if the current leadership team is comprised of the first generation, who founded the business and dedicated their career to facilitate its current successes.  However, it is very critical for them to stand down and let the new leadership team take the reins so they can fully integrate and start building for the future.

Many times, the first generation will hold on to the business for a prolonged period of time, taking away opportunities for the next generation to gain first-hand knowledge and experience that will allow them to transition into the leadership role.  This is often complicated by parent/child or brother/sister dynamics.  The result may be the first generation failing to empower the next generation to make critical decisions that will fundamentally give them the experience necessary to make decisions in the future.

The transfer from generation to generation cannot happen overnight, and must take its due course to get there.  Through the desire for continuous improvement, gaining the trust of all parties involved and the predecessor leadership letting go, the family business can be transformed into generational wealth.

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