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Challenges faced by Executor and Trustee

“I did not receive one nickel of the money and yet my reputation was tarnished!”- the voice of a Toronto accountant who acted as an executor and trustee for her client’s multimillion-dollar estate, as she burst into tears. If she was aware of the legal implications and responsibilities as an executor and trustee, she would not have agreed to it.

Generally, when a loved one passes away, a family member may be appointed in the deceased’s will as the “executor and trustee” of the estate. This person has the fiduciary and statutory duty of care to make sure that he distributes the assets to the beneficiaries of the estate according to the wishes of the will of the deceased. It requires his utmost diligence, good faith, and loyalty in the discharge of his duties.

Amongst his many duties, besides avoiding any conflict of interest while administering the estate, the executor is to prepare an accurate inventory of items in the estate to ensure that nothing of value is hidden from creditors, that one party has not unfairly taken a piece of property belonging to the estate at the expense of other beneficiaries. If he acts without care and causes loss or detriment to the estate, he will be liable to be sued. Even the closest families can be torn apart by problems that arise in the management of an estate.

Many newspaper articles have reported cases where family members ended up taking each other to court. In a recent case, two women had out of good faith and compassion, agreed to be joint executors of a woman’s will. They were found liable to the woman’s son for $87,000. In VJ and others v UVH and others and another [2020] SGCA 49, the brothers appointed as executors and trustees were sued in court for breaching their trustees’ duties in making personal gains by nondisclosure of material information to their sisters, trust funds under their care. In other cases, executors were found liable when they had acted dishonestly and obtained personal gain.

During the administration of the estate, there are also proper procedures for an executor or trustee who wishes to resign or retire. In Chan Chi Cheong v Chan Yun Cheong [2020] SGHC 43, the individual trustee had to resort to the assistance of the court in order to resign from the office.

What is the solution

The testator should carefully consider the person he wants to carry out the executor and trusteeship role in his will. Is the intended lay executor and trustee equipped with the skills of managing the assets? Is he a responsible and trustworthy person? Is he biased against certain beneficiaries? Is he likely to expect a fee or remuneration to perform his role?

Would it not be better to appoint professional executors and trustees over a lay executor and trustee? The administration of an estate can be complex and the person entrusted to carry out the role may himself be deceased or unwilling or incapable of acting as the executor and trustee. By appointing a professional trust company as the default executor and trustee, it will avoid or prevent the various undesirable disputes among the testator’s family members after his death.

Do not worry, call PreceptsGroup, our professional estate and succession practitioners and legal counsel will offer you the solutions to your estate planning concerns.
 
This article is first published on our newsletter, The Custodian Issue 15 on September, 2020. Click here to subscribe to our latest newsletter.

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The Need for Business Succession Plans

While the concept of having a Business Continuity Plan (BCP) has been around for quite a while, the question of feasibility and sustainability has of late become an urgent and important consideration. Beyond this short-to-mid term BCP in response to the global health threat, it is necessary for business owners to consider a broader strategic scheme of things.

Regardless of company type, the importance of planning for the sustainability of business should not be taken lightly. A business is often the most valuable asset of a person, but many business owners don’t have a comprehensive succession plan for their businesses.

We often look to large organisations and think of strategies to increase the market share but often overlook the longevity aspect of the brand. Large organisations such as Microsoft, Tata Group have always had good succession plans that ensured smooth transition after the baton is passed to the next in line. For the family-run businesses or small and medium-sized enterprises (SMEs), this is even more critical as involving ‘outsiders’ into the family business can present major operational or business risks.

The Harvard Business Review earlier this year illustrated “Family business sequels have similar traits to cinematic sequels. But in the family business, it’s not sets and costumes that are reused; it’s ownership structures, role descriptions, and decision-making processes. On paper, defaulting to a family business sequel makes perfect sense. After all, what worked for the senior generation should work for their children, right? Enacting sequels also often offers the path of least resistance: it doesn’t require the senior generation to change their own responsibilities in anticipation of succession (or after), or to change how their organizations make decisions. But that path can lead to significant challenges.”

Proper business continuation and succession planning involving a Business Value Protection Trust (BVPT) can help prevent a business from being frozen and discontinued in the event of adversities to the key person(s). A sound business succession plan ensures a proper exit strategy without compromising on the value of the business, enabling a smooth transition and strong business interest.

The common top-line objectives for businesses are liquidity, sustainability, and control. Not only does a BVPT protect the interest of the other business co-owners, but it also helps avoid conflict among family members and their surviving business owners.

Without the guidance of a trained estate practitioner, many business owners simply give their company shares of the business and split them up among his children in his will.

In non-family businesses, the spouse of the deceased key person may become a partner of the company despite being unfamiliar with the business landscape. Further complications such as differing views and expecting to be consulted are likely to disrupt the business.

For family-owned businesses, a Private Trust Company (PTC) structure can be optimally employed together with a will and standby trust in place to ultimately hold the family business. A PTC operates like a holding company (of the family assets) cum trusteeship, with the appointed successor managing the company.

There is also a need for planning an exit strategy for disinterested shareholders when the key person is unable to continue being in control. Speak to our estate and succession practitioners to find out more.

In helping business owners to grow and protect their businesses, our estate and succession practitioners will help to evaluate risk factors, protecting assets from creditors, and ensure their heirs benefit from the rightful distribution of assets.

Why is there a need for business succession plans? | PreceptsGroup
 
This article is first published on our newsletter, The Custodian Issue 14 on March, 2020. Click here to subscribe to our latest newsletter.