The Expediency of the Trust

F. SCHNEIDER, JR.

THE following letter, from a reader of The Vanity Fair, has been selected for publication, not because it differs materially from many other letters asking for information on financial matters, but rather because it is representative and points a moral and adorns a tale.

FINANCIAL EDITOR, VANITY FAIR:

I am a stockholder in Templar Motors Company and am in need of advice and so come to you. Is it advisable to subscribe to the reorganization committee's present proposition?

I subscribed to the syndicate. Will those who subscribed to the syndicate lose their present stock in Templar Motors Company, if the syndicate is the receiver, as present indications seem to suggest?

Is Di Giorgio Fruit Corporation a safe investment?

Your advice is respectfully requested.

MRS A B

Clearly, here is a woman who was much beyond her depth in a very complicated financial affair. The company in question had gone into a receivership. A syndicate had been formed which held a mortgage for Si,000,000 against the company's plants and other assets. A stockholder's reorganization committee wished to take over the property. The syndicate agreed to take bonds of the new corporation in exchange for its mortgage. The reorganization committee asked the old stockholders to subscribe to new preferred stock at S50 a share, offering one share of new common stock as a bonus with each share of preferred, and an additional share of new common for each ten shares of old common stock held by the subscriber. If this arrangement were not agreed to within a month, the syndicate proposed to sell the plant under foreclosure proceedings, in which event the syndicate seemed likely to "bid in" the property for just enough to satisfy its mortgage, the stockholders thus losing everything.

OUR reader had to decide, accordingly, and decide rather quickly, whether she wished to send more good money after bad or to give up all hope of ever realizing anything on her original holdings. The decision called for wide knowledge and keen judgment. The technical advantages and disadvantages of the proposed exchange of securities were one matter to be considered. Another was the trade position of the Templar car and the nature of the company's management and the character of its plant. Still other factors that bore vitally on the decision were the probable trend of business in general, and of the automobile business in particular. These matters obviously are ones calling for a great deal of technical knowledge and financial experience. The qualities required for a correct decision plainly are beyond the grasp of any but a very few women and, for that matter, are beyond most men.

How our subscriber came into possession of the stock in question she docs not say. It is an unfortunate fact, however, that many women inherit legacies of this kind from their husbands. The husband may have invested unwisely, or may have left investments, ora business, which required constant and close attention, or which fell upon evil days. In any of these cases the conclusion stands out that fully as important as acquiring a fortune or a business, or of buying life insurance, is the provision of a means for ensuring that these interests will be properly managed in case they are passed on to dependants. Bequeathing the finest bonds in the world will not have much value if the recipient can be persuaded by an unscrupulous salesman to exchange them for some "investment" offering a higher return. A magnificent business easily can be ruined if subjected to incompetent management or if economic currents set in new directions. Few things can be ex pected to run along smoothly for indefinite periods, nor can the judgment and initiative of the ordinary person be trusted to see that the proper steps are taken to preserve values.

INSOFAR as most persons now rccognize the necessity for making wills, it may be said that the problem of arranging for an orderly disposition of inheritances has been recognized. A lost persons realize that failure to provide a will means arbitrary disposal of property under the orders of a court, the appointment of an executor who might be incompatible to the various parties concerned, and an added expense besides. A lost persons,also, have disabused themselves of the idea that the making of a will is a great effort and that a will once made is something that is difficult to change. They understand that a will is a highly desirable thing and that it may be made with case simply by visiting a lawyer.

Very few persons realize, however, that the choice and designation of an executor is one of the more important parts of a will. This is particularly the case when, as frequently happens, it is desirable to leave part or all of an estate in trust. Placing property in trust is, of course, one of the best ways of ensuring the continuance of the benefits which it is intended to bestow upon inheritors. Creation of a trust protects the property from the weaknesses, lack of knowledge or poor judgment of the beneficiaries. By safeguarding the principal it ensures a dependable income. The provisions of the trust may be as varied as the special circumstances of the donor and beneficiary dictate. The general principle of projecting the provision for one's dependants farther into the future, however, remains the same.

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While testamentary trusts, that is, trusts which provide for inheritors, are thus particularly desirable, they do impose an added burden on the executors and trustee, for it usually is wise to combine these two functions. The executortrustee must not only arrange for the settlement which follows the death of the donor: he must proceed to manage the property or care for investments, functions which, as we have seen, call for a wide range of talents. The ideal trustee should have a firm grasp of legal and business principles, should be familiar with investment and allied financial matters, should j)ossess that intangible quality known as sound judgment, and should be of unquestioned integrity. Such individuals are difficult but not impossible to find. Certain lawyers specialize in this sort of service and do it quite successfully.

Those who contemplate creating testamentary trusts should consider, however, the utilization of a trust company both as executor and trustee. In many respects trust companies are ideally suited to this kind of service. Possessing adequate technical staffs covering a wide variety of subjects, and with their officers continually engaged in the details of business and financial affairs, these companies have both the experience and skill to discharge the duties of the executor and trustee with unusual efficiency.

NAMING of a trust company insures, furthermore, a continuity of service which is not always obtainable with an individual. If the latter dies during the execution of his trust, a new and possibly not so desirable individual will have to be appointed. A trust company, on the other hand, is not upset by the death of an individual. The character of its staff and of its activities is, on the whole,unchanged, and its service in the management of estates generally may be taken as embodying the best practice. Trust companies, like individuals, are not infallible; and care should be exercised in choosing a trust company, as in choosing an individual. Nevertheless, it is readily apparent that the trust company, as such, has important advantages over the individual, as such.

Those who appreciate the peculiar desirability of the trust company but wish to utilize the special family or business knowledge of an individual, or to familiarize a beneficiary with the management of the property, may combine the two in the trustee relationship. This is done by making the company and the individual co-executors and co-trustees. In this manner the special knowledge or interest of the latter will be combined with the technical knowledge and broad judgment of the former.

Any discussion of trusts which does not take account of the voluntary or living trust would be seriously incomplete. In many cases a person wishes to make provision for others during his own life. He may wish to provide for the bringing up and education of a child, or for the benefit of an educational or charitable institution, or for an independent income for his wife. Or he may wish to make a marriage settlement, or to place part of his fortune in trust for himself in order to ensure a steady income in case of disability or retirement.

In such cases he can create a voluntary trust, which is an agreement between himself and a trustee, by which the latter takes over the property and undertakes to pay the income as desired and to dispose of the principal in the manner which the maker of the trust desires. The maker may either give up entire control of the property or retain as much of the responsibility of managment as he desires. In any event he will be relieved of a great amount of detail work and will have an opportunity of testing out the working of a trust during his own lifetime. In certain cases he also will be able to effect savings in income tax payments.

IN all these matters the average man would benefit greatly by consulting with his lawyer and his banker in the same fashion as he consults with his doctor and his dentist. We have come to see that the doctor's services are necessary not merely to cure during sickness but to prevent its development. Similarly in financial affairs, the advice of the wise banker frequently will forestall financial misfortunes. The average man should realize that the ideal of the present day banker is service. He will quite possibly be surprised to discover the variety of services which the modern bank and trust company can offer him. Your account with your bank makes available important information and advice regarding taxation and investments. It enables you easily to make remittances abroad or to arrange for your funds during a trip abroad. It also brings you in touch with a safe place in which to keep securities. And if your bank is a trust company you can arrange to have it take over the care of your securities in a custodian account or you can name it as trustee in living or testamentary trusts. In any case it will pay you to drop into your bank and enquire as to the different services which it can perform for you, and to become acquainted with its officers. Acquire the habit of talking over your financial problems with your banker as you would talk over your physical condition with your physician. If the woman whose letter gave this article its start, or the person who may have given her her stock, had consulted her or his banker, her present problem probably would not exist.