If you are a family business owner in Washington who wants to place control
of your business in the hands of a trustee until your beneficiaries are ready
to assume control, or for other reasons, a recent change in Washington law may
make this alternative more accessible.
Until recently, trustees had little flexibility in managing an operating
business, and might even sell the business in order to reduce their fiduciary
risk by converting the value of the business to marketable securities. A law
enacted by the Washington legislature in 2015 may provide increased flexibility
for trustees and executors to delegate certain powers and duties to third
parties (including managers of an operating business) without incurring
liability for the actions of such delegates. This change should be good news
for business owners on two fronts:
- First, corporate fiduciaries (such as banks
and trust companies) may now be more inclined to accept trusteeships and
executorships over a trust or estate that holds business interests or
investments requiring active management.
- Second, such fiduciaries should now be more
qualified to administer assets because they should now be better able to
delegate business functions to specialized third party managers.
Under the previous law, a fiduciary (meaning a trustee or executor) could
not be relieved of liability for a delegate’s improper performance of
discretionary acts. In 2015, as part of a number of revisions to theWashington
Uniform Trust Act, a new law was put into effect that changed a fiduciary’s
exposure to liability for the actions of its delegates.
Now, if a fiduciary exercises reasonable care, skill, and caution in
selecting a delegate, establishes the scope and terms of the delegation
consistent with the terms of the administration, periodically reviews the
delegate’s actions to monitor its performance and compliance and enforces the
delegate’s duties, the fiduciary can avoid liability for the third party
delegate’s actions.
The fiduciary does still have a duty to the beneficiaries
to exercise prudence in delegating a function, and in choosing a qualified
delegate, and would likely have an obligation to pursue legal action on behalf
of the beneficiaries against a delegate who performs improperly, but, if the
delegation was appropriate, the beneficiaries can no longer bring legal action
against a fiduciary for the performance of a delegated function.
The potential
relaxation of fiduciary liability for delegated functions means that trust
companies and banks should now be more comfortable taking on trusts and estates holding non-traditional assets
that, in the past, might have caused them to decline.
This is certainly a benefit for business owners who would
prefer to have a corporate fiduciary serve as either a trustee or executor over
their assets. Further, business owners should feel more confident entrusting
corporate fiduciaries with management over their business interests and other
assets because the fiduciaries should be more inclined to delegate management
and investment functions to the most qualified institution, even if that
institution is an independent third party.
No comments:
Post a Comment