Part 6 of a series breaking down the process of helping clients set up Trusts by breaking the issues down into smaller, individual topics, enabling the adviser and client to take the necessary steps, and get the plan moving.
Earlier in our series of topics, we addressed choosing the right executor to handle the client’s estate. Choosing a trustee is a very similar analysis, but it is important to note an executor’s tasks and duties are, relatively speaking, short term. (If you have served as an executor, you may say “That was NOT a short term commitment!”)
Choosing the trustee for the client’s trust hinges on a determination of who has the best ability to handle the responsibilities of administering the client’s affairs for a long period of time. The decision often turns on the personalities within the family, the geographic realities of family relationships, or the confidence in a professional fiduciary.
The choice of a family member as trustee can be much more problematic than choosing one as an executor. In our last topic, we covered trusts being used to protect a susceptible beneficiary, and perhaps requiring the submission of a budget and income sources before a distribution would be permitted. Requiring one child to submit that sort of request to another child is often the recipe for a family disaster. If the trustee-child just rolls over and gives the requesting-child whatever s/he wants, then the client’s intention of protecting the susceptible child will not be fulfilled. If the trust’s terms are much more liberal and permissible, then this is much less of a concern. But if the trust’s terms are specific, perhaps a family member is not the best choice as trustee, and an independent individual or professional fiduciary would be a better choice.
Geography is less of a concern for the selection of a trustee than an executor. Since the trust’s existence may go on for years and years, the beneficiary and trustee will certainly end up doing the bulk of their communications electronically or by phone. There is less need for the trustee to be in close proximity to the beneficiary or trust assets. With that said, of course, there is value to proximity of the trustee if there is a need to ensure that a beneficiary’s living situation is appropriate, the beneficiary’s care needs are supervised and met, and there are periodic visits so the trustee can keep tabs on the beneficiary’s overall situation.
The most important consideration for a client when selecting a trustee is the level of confidence the client has in that selection, because, as stated before, this relationship may be expected to run for many years, if not over generations. The trustee has to have the ability to manage the trust investments, but also administer the trust to meet the needs of the beneficiaries, balancing not only the present needs of the beneficiary, but also the future needs of that beneficiary, and the expectations of those who will ultimately receive the trust property.
Clients should also consider the use of a bank or trust company to serve as trustee. A corporate trustee provides professional, objective administration of the trust, since it has a duty of loyalty to all of the beneficiaries, and not to one beneficiary over another. In addition, unlike an individual, a corporate trustee does not retire or move away. Being involved in trust administration and investment all the time, a corporate trustee has vast experience in taxes, accounting, and access to experts who can provide investment research that an individual would spend hours trying to match. For a client who suspects his/her children will not see eye to eye on how assets are administered and distributed, choosing a corporate trustee may not only eliminate that possibility, but may also end up preserving family harmony. Consider also that individuals typically have full time jobs and families already, so the time they have to “be a trustee” may well be limited to after hours, weekends, and after daily family time. Corporate trustees are able to serve all day, every day, and react to changes in the investment arena quickly.
Choosing the right trustee is essential, given the likely long term nature of the position. Clients need to spend an appropriate amount of time selecting the right one, and may need to be guided as to what variables need to be considered.
In our next topic, we will discuss how flexible trusts are in terms of making changes over time..
You can view the first series of Wills and Probate Administration here and reach out to Dan with any questions. Our attorneys are always ready, willing, and able to meet and discuss any questions, help you articulate your plan and goals, determine the best plan to accomplish them, and then implement it. You will find that, by taking those small steps, the problem that used to lead to procrastination and uncertainty has been addressed and resolved. Learn more about Mansour Gavin’s Estate Planning & Probate group or contact us today.