How to Choose a Trustee – Choosing a trustee to manage your estate when you are gone is an important decision, and one that should not be taken lightly. Depending on the type of trust you are creating, the trustee will be in charge of overseeing your assets and the assets of your loved ones. Most people choose either a friend or family member, a professional trustee such as a lawyer or an accountant, or a trust company or corporate trustee for this key role. Here are some considerations in making this critical decision.
What traits should you look for in a trustee?
As the name goes, the trustee should be trustworthy. If you cannot trust the individual to hold $100 for you, you should not name him as trustee. If your brother-in-law makes a living day trading, steer clear of him. And if your sister-in-law lives paycheck to paycheck, let’s bypass her, too.
If you choose a family member or friend, he should be financially astute, and good with money. You want someone who is, at a minimum, familiar with basic concepts of investing, and preferably someone who has assets of their own that they are investing with an investment advisor. Your sister does not have to be a financial guru, but she should be smart enough to know that she cannot directly invest the money herself. As trustee, she will hire an investment advisor to invest the trust assets, or work with your current investment advisor.
What are the pros and cons?
Most people like to start with considering friends and family members as trustees. They are going to be most familiar with you and your family, and they will understand your family’s dynamics.
In addition, family members often do not charge a trustee fee (although they are usually entitled to take a fee). Cost conscious clients see this as a plus, but it may not be the best decision. Your family may be better served with a professional trustee or trust company who have expertise with trust administration. It could also lead to resentment if the family member does or does not take a fee. Being a trustee can be a lot of work. Your brother may resent not getting paid while overseeing trust assets for your children whom he perceives as being ungrateful. On the flip side, your children may resent their uncle getting paid from their money if he does take a fee.
Another disadvantage is that your family member may be too close to the family and may get caught up in the drama. Or, he may have a power trip and enjoy being in control of your beneficiary’s finances. You may want someone with a little more distance who will see your beneficiaries with a fresh set of eyes and treat them equally.
The advantages of a lawyer or an accountant serving is that they have familiarity with your family if you have worked together for a long time. While they will often charge more than a friend or family member, they typically charge less than a trust company or corporate trustee. Lawyers and accountants generally charge their hourly rate for the time they spend serving as trustee. A disadvantage is that they may not have the same institutional structure that a trust company will have. This can also be a plus if you prefer a trustee with more flexibility than an institutional trustee.
Trust companies bring structure and oversight to the trust administration including a trust department that oversees the administration. You will pay for this service, but in many instances it will be money well spent. They will make the tough decisions and tell beneficiaries “no” when appropriate. It is often advantageous to use a trust company when the beneficiaries do not get along, when there is a problem beneficiary, or when you are dealing with large sums of money.
A drawback to a trust company is that they may be hard to remove or become inflexible. They also may be tightfisted in making distributions if it will reduce the assets under management that they are investing. These concerns can be addressed by giving a neutral third party, such as a trusted family member or advisor, the ability to remove and replace the trustee.
What if you cannot decide?
First, consider co-trustees. Why not name your sister and a professional trust company? Your sister will be most familiar with the family dynamics, but the trust company can handle all the trust administration and make the tough calls when needed.
Build flexibility into the plan. Give others, such as your spouse, the ability to remove and replace the trustee. You also may be able to remove and replace the trustee during your lifetime.
Let someone else decide. In certain circumstances, you can let the beneficiaries choose the trustee on your death. Or, you can let your lawyer or other advisor choose the trustee down the road.
Do not put off finalizing and signing your estate planning documents just because you have reached an impasse on who to name as trustee.Talk to your lawyer and other advisors and work through your concerns to find a solution that works for you and your family.
*Article written by Christine Fletcher, Forbes
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