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Financial Planning for Self-Storage Owners: Using a Trust to Guarantee Your Legacy

For self-storage owners, a trust can be a smart fiscal choice and a way to ensure the legacy built during their life continues after death. This article explains how a trust works and the role of the trustee.

By Steven C. Anderson and Jerry Jones

After actor Philip Seymour Hoffman died in 2014, court documents revealed he didn’t want his children to become “trust-fund kids.” Rather than establishing a trust, he chose to leave his fortune to his girlfriend, the mother of his children.

The decision to create a trust is a personal one. However, beyond the potential for creating unmotivated offspring, a trust can be a smart fiscal choice for self-storage owners and a way to ensure the legacy built during their life continues after death. This article explains how a trust works and the role of the trustee.

What Is a Trust?

A trust is a legal document recognized by law. There are two basic categories: a living or inter-vivos trust, which is created during your lifetime, and a testamentary trust, which is established after death. The terms of a trust are many and limited only by your imagination. Some of the most common reasons to establish a trust are to:

  • Dictate specific terms and conditions for the distribution of your wealth
  • Plan ahead and ease the burden for loved ones after your death
  • Avoid probate
  • Reduce estate taxes that could take a significant bite from your financial legacy
  • Allow for easier management of cash needs and assets if you become disabled
  • Establish continuity of asset management at death
  • Support a philanthropic cause

Here are some basic terms you should know:

  • Grantor: The person who establishes and transfers property into the trust. He can also be called a settler or donor.
  • Beneficiary: The person or entity who receives the benefits of the trust.
  • Trustee: The person who manages and administers the trust. The trustee holds a legal but not a beneficial title to the trust assets and has the power over the disposition of the trust property in accordance with the trust agreement.

Role of a Trustee

Having a professional trustee isn’t a legal requirement, but it can be an enormous advantage to those who don’t have the time or expertise to successfully manage their own trust. While a professional trustee can be used in many ways and serve many purposes, the main responsibility is to give clients peace of mind and excellent service in the management of their trusts.

The role of trustee comes with a multitude of responsibilities such as acting as a fiduciary for the trust. Therefore, trustees should be highly organized and oriented toward serving others, and have a solid understanding of financial basics.

A trustee’s main duty is to exercise reasonable care, skill and judgment for the trust. This means he must treat beneficiaries the same without favoring one over the other unless the trust specifies it. This also means investing the trust assets in a conservative manner that will result in reasonable growth with minimum risk unless the trust allows for a less conservative approach.

Trustees can’t use trust assets for their own benefit unless the trust authorizes it. Trust assets must be kept separate from a trustee’s personal assets, with separate checking and investment accounts. Accurate records must be kept, tax returns filed and reports sent to beneficiaries as the trust requires.

Failure to act as a fiduciary exposes the trustee to a lawsuit from the beneficiaries if they feel the trust was mishandled or they were wronged. Here are some other considerations:

  • A will: It’s important to have a will, as it will define which people or entities will inherit possessions not included in your living trust and how. Not all assets can be owned by a trust, so a will has its place.
  • Durable power of attorney: This is a document that names a person or entity you authorize to act on your behalf if you become incapacitated or die. This person would be able to act for you in your financial life.
  • A living will, advanced health care directive or health care power of attorney: These documents name someone to help you or replace you in making medical decisions. It can also outline some of your own wishes, as it relates to how much care you would desire in an acute life-threatening situation.
  • Business transition: If you own a business or properties that act like a business, who will operate them if you’re unable or have passed? It’s vital to have business-succession plans in place as well as assets properly owned to achieve your long-term goals and leave a legacy instead of a mess.

Work With Professionals

Estate planning is custom and complicated, so reach out for some professional help. Your attorney, certified public accountant and financial advisor can help you through this process. Consider having them work together as your personal planning team.

Financial and legal professionals can help determine what kind of trust is right for your situation. You may also want to consider a professional trustee if you don’t want to burden a family member with the responsibilities and issues that arise from this role. You’re working hard to build your wealth and legacy, so be sure to execute the appropriate documents and plans to guarantee your wishes are carried out after your death.

The information in this article is not intended to be used as the primary basis for making investment decisions.

Steven C. Anderson is a financial advisor at RBC Wealth Management in Reno, Nev., a division of RBC Capital Markets LLC. For more information, visit www.stevencanderson.com.

Jerry Jones is a certified public accountant who has worked closely with self-storage owners, operators and managers for more than 25 years to ensure proper accounting/tax procedures are being addressed. He can prepare tax returns for operators nationwide. For more information, visit www.theselfstoragecpa.com.

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