A trust is a legal relationship in which a person (the settlor) transfers property to another person (the trustee). The trustee then holds the title of that property for the benefit of others (the beneficiaries).

Your client owns property and wants to protect it in case she becomes mentally incapable of managing it. She has two options: a trust or a Continuing Power of Attorney for Property(CPAP). If she’s over 65, either an alter-ego or joint-partner trust can be a better choice.

That’s because these trusts can be more:

  1. Comprehensive.

    Trustees’ duties and powers can be tailored to many circumstances. CPAPs rarely outline how to appoint and replace attorneys, and they don’t usually give detailed directions explaining how to manage the property.

  2. Continuous.

    A trust continues to exist after a client dies—so management of the property continues uninterrupted. Neither incapacity nor the settlor’s death affects a trustee’s authority.

    On the other hand, a CPAP ends when the client dies, so beneficiaries have to wait until her will goes through probate for the executor to take over property management.

    This can cause major delays, because banks and other third parties typically require probate as proof of authority.

  3. Protective.

    A trust can outline the procedure for assessing incapacity, and requires the trustee participate with the settlor in decisions, or make them alone once the settlor becomes incapacitated. If the settlor can’t revoke the trust, these measures help ensure family members and others don’t unduly influence the management and distribution of the settlor’s property. By contrast, the person using a CPAP can still manage her own property, and even try to revoke the CPAP, after she becomes incapacitated.

  4. Private.

    A trust is confidential, so there is typically less scrutiny by courts or regulators. A CPAP, by contrast, is no longer valid if someone applies to the courts to appoint a guardian of property and the application is granted; that won’t happen if the property is under a trust.

  5. Interjurisdictional.

    When someone owns property in more than one province or country, and becomes incapacitated, she may need to appoint a power of attorney, guardian, or legal representative in each jurisdiction. That’s expensive and time-consuming. Using a trust avoids these requirements.

    Before choosing a trust, assess your client’s circumstances, along with tax implications, any professional planning and administration costs, possible ongoing trustee fees, and your client’s comfort level in sharing decision-making with co-trustees.

There’s quite a difference between equity and bond indices.

So says Patrick Bradley, product specialist with the global fixed-income team at Brandywine Global Investment Management in Philadelphia. He co-manages the Renaissance Optimal Income Portfolio.

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Like equity indices, they offer snapshots of their associated bond markets; an example is the Citigroup World Government Bond Index (WGBI), which comprises sovereign government bonds of investment-grade-rated companies.

But Bradley warns many investors don’t like bond index data since they don’t accurately gauge the overall bond market.

“If a company accounts for a large component of an equity index, then it has significant market capitalization,” he says, and investors are often attracted to the company as a result.

But, “If you’re a large component of a bond index, all that means is you issue a lot of debt. And that’s not a reason to invest in a particular country.”

For example, Japanese yen-denominated bonds are roughly 32% of the WGBI—denominated in Canadian dollars. But clients would need to ask themselves if they wanted to own Japan simply because it’s such a large component of an index.

“There are better opportunities in the market,” says Bradley, so he doesn’t invest in accordance with bond indices.

Read: Index construction is tricky

Additionally, there are also a large number of securities in bond market indices—the Citigroup WGBI has over 900. To complicate matters, “different issues present you with differing maturities and durations” even if they have the same issuers.

For this reason, bond indices are seen as “moving target[s] that change over time” rather than as reliable, stable gauges of market performance.

While equity indexes offer more accurate glimpses of markets, bond indexes are flawed and shouldn’t be relied upon, concludes Bradley.


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Originally published in Advisor's Edge