Many of our clients include one or more Trusts as part of their estate plans. Here are some thoughts and questions to consider when choosing a Trustee.

Most of our clients have given great thought to protecting their assets and preserving their accomplishments for the benefit of their loved ones. Whether they have nurtured a successful enterprise, are operating a growing business, or are managing a portfolio of rental properties or securities, they have clear ideas about what they want—and don’t want—regarding the distribution of assets to their families and charities.

To ensure that their wishes are followed just as they envision, many of them choose to set up a Trust, either while they're alive (an "inter vivos" or "living trust") or as part of their Will (a "testamentary trust"). Once you make the decision to create a Trust as part of your estate plan, you must then select who can best carry out your plans. “Who do I choose as my trustee?” becomes a critical question. Being a trustee means accepting specific duties and the related liabilities under the law. These include impartiality between the interests of the current and future beneficiaries, properly accounting to all beneficiaries, prudently investing trust funds, managing trust property, and following the clear prohibition against self-dealing.

It is imperative that you understand the strengths and weaknesses of your chosen trustee and that your trustee appreciate their responsibilities and liability to the trust beneficiaries—which may include the trustee.

QUESTIONS TO CONSIDER. (1) Can your trustee separate their personal feelings and interests from those of the beneficiaries and exercise good judgment at all times? (2) Will your trustee treat all the beneficiaries impartially if, for instance, your children are not your spouse’s children? (3) Does your trustee have an ability to analyze investments? (4) Will there be temptation for your trustee to take undue risk in buying investments hoping for a hefty return? (5) Will a child who is balancing their family and career have adequate time to devote to serving as trustee?

SOME OBSERVATIONS:

* Family members are closer to the beneficiaries and are more likely to understand their needs.

* A related trustee may charge the trustee’s costs to the trust but usually does not charge an administrative fee.

* Using a sibling as trustee can exacerbate tensions and resentments among the beneficiaries.

* A relative with no trust experience may abuse the trust through ignorance but will still be liable for substantiated damages.

SHOULD MY LAWYER, ACCOUNTANT, OR FINANCIAL ADVISOR BE MY TRUSTEE? Lawyers, accountants, and financial advisers have special and trusted relationships with their clients. You may be looking for a person who understands your financial and personal goals and is capable of carrying out estate or other financial plans. However, even if a lawyer, accountant or other advisor understands the nature of your business or your financial goals, they may not fully appreciate the scope of the fiduciary duty or the inherent risks and responsibilities of being a trustee.

MORE QUESTIONS TO CONSIDER: (1) Can a legal or tax adviser understand the dynamics of your family? (2) What experience do they have as a trustee? (3) If there is a breach of duty that results in a significant financial loss to the trust, will the trustee be able to personally satisfy a judgment if professional malpractice coverage will not make the trust whole? (4) Is the trust drafted so your beneficiaries can bring such an action against the trustee?

SHOULD A BANK OR TRUST COMPANY BE MY TRUSTEE? Banks and trust companies provide professional fiduciary services and can act independently. These corporate trustees have procedures and systems in place to manage property and invest funds in a fair and consistent manner. They have met capital reserve requirements for added solvency in case they are ordered to replace lost trust value due to a breach of trust.

Choosing a corporate fiduciary may reduce conflicts among family members while providing experienced and professional investment and administrative management. All fiduciaries are held to a very high standard, but this is truer for corporate fiduciaries who have been granted state or national charters authorizing them to provide professional fiduciary services.

EVEN MORE QUESTIONS TO CONSIDER: (1) Will the corporate trustee invest the time to understand my family and their needs? (2) What standards can I expect from the administrator whose decisions directly affect my family? (3) Does the administrator realize the goals of my trust? (4) Will a corporate trustee’s administration and investment services be worth the fees the trustee charges the trust?

Corporate trustees follow specific policies and procedures to ensure unbiased and professional services. In addition, they provide monthly account statements and written explanations for trust decisions. Corporate trustees publish their fees, typically charging between 1% and 3% of trust assets as the annual administrative fee, but fee concessions are often negotiable. Many corporate trustees centralize smaller trusts rather than provide local administration.

In any event, it will be well worth your time to thoroughly discuss your trust with any person you may consider for trustee and to interview a few potential trustees to understand how they work and what they can contribute to your family’s continuing success. If you have questions about Trusts, Trustees, or estate planning in general, give us a call at 253.858.5434 to find out how we can be of service.