IPS:Individual (On Page 194, Book 1 of Schweser)

CFA Level III
#1

Hi, all. about Legal & Regulatory factors; Schweser says; If the client has or desires a trust, mention that the manager must balance the interest of the income beneficiary and the remaindermen. please clarify this sentence… what should we know about “trust” in relation to Individual investors IPS? thanks.

#2

I remember reading somewhere in the CFAI saying that if client desires to set up a trust, refer him to a legal counsel (because setting up a trust is complicated).

#3

thanks, Ashwin! plese let me ask questions further, >If the client has or desires a trust, mention that the manager must balance the >interest of the income beneficiary and the remaindermen. anyone clarify “interest of the income beneficiary” and “remaindermen”. what these two mean?? thanks in advance.

#4
  • Interest of the income Beneficiary refers to the benefits of beneficiaries which they receive from a trust on a regular basis for a period of time as specified usually in the Trust deed… - Remaindermen receive benefits from the residue of the trust assets after the interests of income beneficiaries and other prior obligations have been exhausted…
#5

FWIW. Suppose an individual created a trust with his funds which is managed by a trustee. It may have beem mentioned in the trust deed that the funds should be managed professionally so that, say, his grand child should get a monthly living expenses as long he lives (grand child) and after that the funds should be given to charity. There may be a question that whether there is any breach if the portfolio manager invests in high income yielding securities without any consideration for capital appreciation. Here it appears that to increase the monthly income the grand child might advise/force portfolio manager to invest in risky assets which yield more. But due to this act of the portfolio manager, the interest of the remaindermen (charity) is at risk because there may not be sufficient money after the death of the grandson. Hence the portfolio manager should match interests of both Grandson and charity (beneficiatry and remaindermen) else violation. Hope this helps.