Choosing the Trustee
1. If I set up a trust who should I choose as a trustee?
If your will leaves assets to a trust, then the executor will transfer those assets to the trustee for distribution to the beneficiaries. An executor’s duties can be quite time consuming and at times difficult. However, the executor’s duties are at least over within at most a few years. Meanwhile, a trustee’s duties can continue for generations. And they require expertise in collecting estate assets, investing money, paying bills, filing accountings (quarterly or annual) and managing money for beneficiaries. The trustee consults with your beneficiaries about the size of the checks issued periodically, what expenses will be paid, what withdrawals against principal will be permitted. Obviously, then, it’s preferable to choose someone with whom the beneficiaries feel comfortable. Since no individual lives forever, a bank or trust company should ultimately be designated as successor trustee.
2. What powers should you give the trustee?
In general it is advisable good idea to give wide latitude to the trustee, because the economy changes so quickly. And because the law often limits what kinds of investments a trustee can make, you have to spell out these powers in the trust agreement. The most important decision to make in designating a trustee is whether to use a family member or a professional.
3. What are the advantages of having a relative named as a trustee?
Many people choose family members to serve as trustees. They don’t charge a fee, and they generally have a personal stake in the trust’s success. If the family member is competent to handle the financial matters involved, has the time and interest to do so, and if you’re not afraid of family conflicts if one relative is named trustee, using a family member can be a good move for a small to medium sized trust. If you do choose a relative to be trustee, then make sure to consider who the successor will be in the event of death, incapacity, divorce or other family strife. Many settlors or grantors also name co-trustees. Usually the spouse will be a co-trustee, so that when one spouse dies, the other takes over, with a successor co-trustee who’s a lawyer or has some specialized legal or financial knowledge. But corporate trustees, while expert, may be too expensive for moderate estates. Before selecting a trust company, it is advisable to discuss this with a trust officer of the institution.
4. What is the downside of choosing a family member(s) as a trustee?
Here are the downside to choosing family members;
a. Lack of expertise. Your relatives often lack the financial acumen of a professional trust officer, and so must often hire professional help.
b. Relatives Die. Trusts can last for many years. Human trustees die; banks don’t and if they merge, the new company automatically will succeed to its trust operations.
c. Family wars. Depending on their relationship with the beneficiary, family trustees may have problems with what the beneficiary wants and what’s best for him or her. Sibling rivalries may also complicate arrangements in which one brother or sister serves as trustee for others. I always recommend a middle course between naming an institutional trustee and naming a family member is choosing a relative as co-trustees.
5. What are the advantages of having an institutional trustee?
Banks are permanent institutions that can manage your trust for decades. They also have professional knowledge of and experience with investment options. They’re objective and regulated by law. If you question the honesty or reliability of friends or family members, a bank is the usual preference; and it can handle the investments, tax preparation, management, and accounting.
6. What are the disadvantages of having an institutional trustee?
a. Cost. If you do use a bank or trust company to manage the assets, then expect to pay a fee for those services. These institutions sometimes have a minimum fee that makes them costly for a small trust. Ask your trust company for its schedule of fees or discuss it with a trust officer. Find out what services are included and those for which additional fees are charged, including a termination fee. Fees are deductible for income tax purposes, to the extent the income is taxable to the trust or beneficiaries.
b. Impartialiaty. While a bank probably won’t die, that doesn’t mean your beneficiaries will always be dealing with the same person; personnel move around, or move on. As depositors in many banks have learned, the bank itself can change hands. And your beneficiaries will want someone who’s willing and able to listen to and discuss their needs and questions; impersonal institutions are sometimes weak in these interpersonal areas. On the other hand, when squabbling relatives are involved, impersonality can be a disadvantage. If you do choose an institutional trustee, make sure you and your beneficiaries are comfortable with the people they’ll be dealing with.
