Choosing a trustee is a lot like choosing the leader of a company you will not be around to supervise. Obviously this is a big and very important decision. As the name implies, a trustee should be someone you trust. But what if even your most dependable loved ones are lacking in the time or financial skills necessary to manage an estate?
In general, a trustee should be knowledgeable about investments, taxes and accounting, and have experience managing trusts. Trustees are often called upon to render important, impartial decisions and to communicate those decisions to all interested parties. And for many trust owners, the ideal candidate is someone outside their inner circle of family and friends.
Who Can Be a Trustee?
When you set up a trust, you need to name a trustee to manage the assets your trust controls. Depending on the scenario, their duties can include paying bills, managing investment portfolios, selling real estate, filing tax returns, and distributing trust assets to heirs or remainder beneficiaries.
There are two basic types of trustees: Individual and Corporate. Determining which type is the best fit depends on the size of the trust, the skills required and a host of other considerations.
- An Individual Trustee is typically a family member or close friend of the settlor – the person who owns the trust. Naturally, a settlor would want to have someone they know and rely on to make decisions regarding management of the trust. If the trust is a simple one, an Individual Trustee is generally a good choice.
- A Corporate Trustee is a company that offers professional, independent management of trusts for individuals. This type of trustee does everything that an Individual Trustee can do, and is usually affiliated with a bank trust department, trust company, brokerage house or attorney’s office.
Hiring a Corporate Trustee: Common Family Dynamics
It is critically important to feel confident in your choice of a trustee. Naming an individual from your pool of family or friends may not be an option. Here are a few scenarios that could benefit from appointing a Corporate Trustee:
- A person with few or no family members.
Many clients simply do not have the appropriate family or friends to assign as the successor trustee. If they are childless, have outlived many of their close family and friends or have difficulty trusting anyone, naming an Individual Trustee may not be feasible.
- Loved ones who cannot adequately manage a trust.
Few family members or friends have all the necessary characteristics and qualifications of a trustee. Fewer still would take on the responsibility if they understood everything that was expected of them. The role of a trustee can be time-consuming and difficult, especially for someone who is unfamiliar with the responsibilities.
- Beneficiaries who are not financially independent.
Clients may have children who are not very skilled at handling money or dealing with a lot of the financial decisions that come with managing assets. These could be minor children, children with special needs or children who spend money recklessly.
Real-Life Trust Client Case Study
One of our clients wanted to set up a trust that would not give all the income or principal to their child in one lump sum, because they were concerned their child would spend the money foolishly. On the surface, this seemed like a good idea – but the plan they envisioned had some significant shortfalls.
The client considered providing a percentage of the trust’s funds to their child on an annual basis. Because interest rates rise and fall unpredictably, we explained this may not provide adequate income to the beneficiary. And, what if the child lost their job or faced a medical crisis? The child may be unable to pay these unanticipated expenses, despite having a pot of money with their name on it. Our client was focused on the prospect of their child purchasing a sports car and a boat, but forgot to consider other important possibilities.
In this case, we selected a Corporate Trustee to decide when distributions are appropriate, and whether those distributions are part of the trust’s income or principal. Additionally, we provided instructions for the Corporate Trustee to give very detailed examples of how our client would like to see the money used for their child. That way, the trustee can carry out the settlor’s wishes long after they are gone – no matter what happens.
Costs Associated with Using a Corporate Trustee
Corporate Trustees charge for their services, and many have a minimum threshold of $100,000 in manageable assets. Other companies do not want to manage accounts of less than $500,000. Terms vary greatly by the institution.
For many clients, the relatively small fee (around 1%) is offset by:
- Not having to trouble children with the duties of a trustee;
- Experiencing greater peace of mind; and,
- Knowing that Corporate Trustees, as a whole, are more skilled at managing assets than Individual Trustees.
Corporate Trustees can save a lot of headaches down the road and can also be a good way to avoid fighting amongst the siblings after Mom or Dad is gone. There are many Corporate Trustees in the greater St. Charles area to choose from, and more that operate nationally.
Achieve Peace of Mind with Beck & Lenox Estate Planning and Elder Law
After working a lifetime to provide for your family and create a legacy, it is important not to risk jeopardizing your estate and the well-being of your beneficiaries by choosing an inexperienced trustee. Choose someone who will treat your estate and your beneficiaries with skill and care.
If you only have a will, and have other assets you want to preserve for your beneficiaries, consult with an experienced estate planning attorney about establishing a trust. If you already have a trust in place and believe that a change of trustee is needed, the attorney can be your impartial partner in making this important decision.
Contact one of the attorneys at Beck & Lenox Estate Planning & Elder Law to schedule a free consultation to discuss your trust needs and requirements. Request your visit online, or call our St. Charles office at (636) 946-7899.
This article is not intended as a substitute for the legal advice of an attorney. Readers should consult with an attorney for matters concerning their estate and estate planning documents.