If you have created a trust that you intend to last for decades, choosing the right trustee is critical to ensuring its longevity and ultimate success. Should I choose a family member as trustee in such cases? Many ponder this question.
Initially, you may think that a family member (for example, Uncle Bill to your children, who are the initial beneficiaries of your trust) will be the best choice as trustee. After all, Uncle Bill understands your children’s personalities and varying needs, and since Bill has always been frugal, he will surely keep the costs of administering the trust down. These are good reasons to select a family member like Bill to serve as trustee.
However, Uncle Bill may not make a good trustee for a long-lasting trust, as he may not be equipped to handle all of the obligations independently. When asking, “Should I choose a family member as trustee?” consider that he may need to hire legal, investment, and tax advisors to ensure the trust is distributed, managed, and invested as you intended. These expenses can potentially be the same (and, on rare occasions, more) than the fees of a professional or corporate trustee, such as a bank or trust company. Many professional and corporate trustees can meet all of the fiduciary obligations of a trustee under one roof for one comprehensive fee.
Below are five reasons you may want to consider choosing a professional or corporate trustee for your trust instead of Uncle Bill:
- Professional and corporate trustees do not have a potentially disruptive personal life. A professional or corporate trustee does not become ill or die, marry or divorce, have children or grandchildren, go on vacation, move abroad, or have day-to-day distractions that could get in the way of properly administering your trust. The named professional or corporate trustee will likely be a bank or private trust company. Suppose the person designated by the bank or trust company to act as trustee is unavailable. In that case, someone from the bank or trust company can step in without involvement in court or beneficiary.
- Professional and corporate trustees are unbiased. A professional or corporate trustee will not favor one of your children over another (unless that is what you intended) and will act in an unbiased manner to make distributions that benefit both the current and remainder beneficiaries. They are not part of your family and will not be tempted or swayed by unrelated drama between family members.
- Professional and corporate trustees avoid conflicts of interest and self-dealing. Professional and corporate trustees will not sell the family company or vacation home (that you intend to go to your grandchildren eventually) to themselves or a friend at less than fair market value. Any sale or other transfers will be made according to the stated wishes in the trust and should not personally involve the professional corporate trustee.
- Professional and corporate trustees invest appropriately. Professional and corporate trustees are typically more skilled at managing and investing assets, with access to experienced financial advisors and divestment investment strategies. For example, a professional or corporate trustee may better understand that subject to any specific instructions in the trust, they should not invest trust assets (accounts, property, etc.) in real estate or a high-risk hedge fund. Still, they should diversify the portfolio to benefit both the current and remainder beneficiaries (the ones entitled to benefit from the trust after the current beneficiary).
- Professional and corporate trustees have expert knowledge. A professional or corporate trustee will not need to hire a slew of attorneys and accountants to interpret the trust agreement and will keep current on changes in the laws governing trusts, fiduciaries, and taxes.
Final Considerations
From managing the current and remainder beneficiaries’ requests and expectations and providing them with periodic reports regarding trust assets, liabilities, receipts, and disbursements to prudently investing trust assets and preparing and filing all required tax forms, a trustee’s duties and responsibilities are extensive. When wondering, “Should I choose a family member as trustee?” weigh these factors carefully.
A professional or corporate trustee, rather than Uncle Bill, may be the best option for your trust. Please book a FREE Discovery Call if you have any questions about selecting a trustee or using professional or corporate trustees so that we can assist you in designating the right individual or entity to serve as your trustee.
