Trusts can be a great way to protect your assets and transfer wealth to family members and charitable causes. But it’s how those trusts are managed that really determines their efficacy. To ensure your intentions are honored, you’ll need to make sure you select the right trustee—someone trustworthy, prudent and agile enough to respond to your beneficiaries’ needs promptly over the course of their lives.
For a revocable or living trust, ensuring the funds are in the right hands is simple: You can designate yourself as the trustee. Irrevocable trusts (or revocable trusts whose grantor has passed away) can be a different story. Trust documents can spell out most powers but aren’t meant to anticipate every scenario that trustees or beneficiaries might come across.
Here are four critical questions to consider to help you choose the right trustee.
- What does the trustee do? Trustees have oversight over all property held by the trust and have the power to make investment decisions about cash or securities as well as managing businesses or real estate held in trust. They are also responsible for filing tax returns and distributing payments to beneficiaries. A trustee is legally liable for their actions, so they’ve got skin in the game. In short, being a trustee can be a full-time job, so whomever you pick should understand the commitment involved.
- Do you need a professional trustee? The answer to this question depends on your estate and your beneficiaries. Professional trustees can include a financial institution, like a bank, or advisers with significant experience serving as trustees. These trustees have the resources and technical know-how to properly administer trusts and can help provide continuity, objectivity, operational knowledge and consistency, serving several generations of a family. But they might be less familiar with the personal needs of your family and less flexible when making distribution decisions.Individual trustees are generally family members or friends whom the donor trusts to understand and carry out their intentions. Family trustees may need to engage investment advisers and other professionals to fulfill their fiduciaryA person or organization who manages assets for a third party, and is legally bound to act in the best interests of that third party, putting the third party’s interest before their own. duties. If you have an individual trustee in mind, it might make sense to also appoint a professional co-trustee to handle logistics.
- What is the trust’s timeframe? Trusts can be set up to last for decades. Or they may terminate upon the passing of a spouse or child. If you’re setting up a trust to benefit several generations, you may need to select a professional, institutional trustee to ensure continuity. But even if you intend the trust to dissolve in the short or medium term (say, when a minor child becomes an adult), it’s still wise to provide instructions on how future beneficiaries should pick (and potentially remove) future trustees in case your designated trustee resigns or becomes incapacitated.
- Will the trustee be paid? Trustees are legally entitled to reasonable fees for their services and professional trustees will often have fee schedules you can compare. Generally, the more complex your trust is to administer, the higher the fees. If your trust is relatively simple with few beneficiaries, an individual trustee might be a better option. Their fees might be lower or even limited to expenses that they incur for their work on the trust.
Naming a trustee who is knowledgeable, reliable and can navigate your family’s dynamics should ensure that your goals are achieved and that your heirs are cared for as intended. Our estate, tax and financial planning specialists can help walk you through this process. Please don’t hesitate to contact your wealth management team; we’re always happy to help.