Most of my clients have already given great thought to their need to protect assets and preserve their accomplishments for the benefit of their loved ones. Whether you have nurtured a successful enterprise, are operating a growing business, or managing a portfolio of rental properties or marketable securities, you have clear ideas about what you do and don’t want in relation to how your children and grandchildren may benefit.
If you make the decision to fund a trust as part of your succession planning, you must then select who can best carry out your plans. “Who do I choose as my trustee or trustees?” becomes a critical planning question.
Should my trustee be my spouse or child?
Being a trustee means accepting specific duties and the related liabilities under state law. These include, but are not limited to, impartiality between the interests of the current and future beneficiaries, properly accounting to all beneficiaries, prudently investing trust funds, managing trust property, and a clear prohibition against self-dealing. It is imperative that you understand the strengths and weaknesses of your chosen trustee and that your chosen trustee appreciate his or her responsibilities and personal liability to the trust beneficiaries, that may also include the trustee.
Questions to consider: Can your trustee separate his or her personal feelings and interests from those of the beneficiaries and exercise good judgment at all times? Will your trustee treat all the beneficiaries impartially if, for instance, your children are not your spouse’s children? Does your trustee have an ability to analyze investments? Will there be temptation for your trustee to take undue risk in buying investments hoping for a hefty return? Will a child who is balancing his or her family and career have adequate time to devote to serving as trustee?
Should my trustee be my Attorney, Accountant or other trusted advisor?
Attorneys, accountants and financial advisors often have a special and trusted relationship 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, just because an attorney, accountant or other advisor may understand the nature of your business or your financial goals, he or she may not fully appreciate the scope of the fiduciary duty or the inherent risks and responsibilities of being a trustee.
Questions to consider: Can a legal or tax advisor understand the dynamics of your family? What experience does he or she have as a trustee? Can he or she separate his or her personal financial interests from those of your beneficiaries? 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? Is the Trust even drafted so your beneficiaries can bring such an action against the trustee?
Should my trustee be a bank or trust company?
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.
Questions to consider: Will the bank or trust company invest the time to understand my family and their needs? What can I expect from the administrator making decisions that directly affect my family or realizing the goals of my trust? Will a corporate trustee’s administration and investment services be worth the fees the trustee charges the trust?
What are the advantages to choosing more than one trustee?
You may find it best to answer some of these questions by choosing one or multiple individuals to serve as trustee alongside a corporate trustee. It can be helpful to have more than one trustee in order to balance recordkeeping, investments and other trustee’s duties. A properly drafted trust agreement can expressly outline the duties of the various fiduciaries, such as the retention of specific investments, delegation of particular duties, and who may remove a trustee and appoint a successor. An individual co-trustee may have a particular understanding of a beneficiary’s needs and assist the other trustees and/or the corporate trustee in making discretionary decisions.
Many of the answers to these questions will depend on the size of the trust and the nature of the trust assets, but a trust need not be millions of dollars to influence the beneficiaries for better or for worse. It will be well worth your time to thoroughly discuss the trust with any person you may consider for trustee and to interview a few corporate trustees to understand how they work and what they can contribute to your family’s continuing success.