If you have created a trust that you intend to last for decades, choosing the right trustee is critical to ensuring the trust’s longevity and ultimate success. Initially, you may think that a relative (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 possibly 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 on his own. He may need to hire legal, investment, and tax advisors to ensure that the trust is distributed, managed, and invested as you intended. These expenses have the potential to be the same (and, on rare occasions, more) than the fees of a professional trustee or a 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:
Reason 1: More Stability than Your Relative Can Provide
While your relative has the personal touch of being family, this benefit also has draw-backs that a professional or corporate trustee doesn’t. A professional or corporate trustee, such as a bank or trust company, 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. While a bank or trust company may have a staff member dedicated to managing your trust, should that person be unavailable, another team member can step in without too much disruption.
Reason 2: Greater Impartiality than Among Relatives
As mentioned, relatives have the inside scoop on the family, but also leaves them open to accusations of favoritism and bias, especially when distributing trust proceeds among multiple beneficiaries overtime. 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 therefore will not be tempted or swayed by unrelated drama between family members.
Reason 3: Their “Fiduciary Duty”
All Trustees (both your relatives and corporate trustees) are tasked with the “fiduciary duty” to manage the trust prudently. A fiduciary duty is one of the highest standards that an agent can be held to. If you are ever curious what level of care a fiduciary should show, think about the amount of care and attention you’d want paid to your affairs, then provide 10% better service…that’s fiduciary duty. Professional and corporate trustees also have the added incentive to avoid conflicts of interest and are believed less likely to fall int0 “self-dealing” pitfalls.
Professional and corporate trustees will not sell the family company or vacation home (that you intended to eventually go to your grandchildren) 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.
Reason 4: Investment Know How
As mentioned, all trustees are under a fiduciary duty to manage your trust assets prudently. 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 but should instead diversify the portfolio to benefit both the current and remainder beneficiaries (the ones entitled to benefit from the trust after the current beneficiary).
Reason 5: Resources at the Ready
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.
While Uncle Bill may know the intricacies of the family and its foibles, he may not be the best person to solely manage your trust. Please contact our office if you have any questions choosing backup trustees and how a plan can be tailored to suit your family and its needs. Nielsen Law PLLC provides family-focused estate and business planning to individuals and families in Austin, Round Rock, Cedar Park, and the Central Texas area. For more information, and to learn about our firm, please contact us. We look forward to working with you.
