Choosing the Right Trustee - Adviser Investments

Choosing the Right Trustee

Trusts can be a great tool to protect your assets and transfer wealth to family members and charitable causes. But the efficacy of a trust depends largely on how well it’s managed.

For a revocable or living trust (where assets remain in your control and terms can be altered), ensuring the funds are in the right hands is simple: Designate yourself as the trustee. Irrevocable trusts (or revocable trusts whose grantor has passed away) are a different story—you need to appoint an outside trustee.

Trust documents can cover most of the possibilities but aren’t meant to anticipate every scenario that trustees or beneficiaries might encounter. To ensure your intentions are honored, you’ll need to select someone trustworthy, prudent and agile enough to respond to your beneficiaries’ needs promptly over the course of their lives.

Here are four critical questions to consider to help you choose the right trustee.

1. What does the trustee do? Trustees have oversight over all property held by the trust and have the power to make investment decisions as well as the power to manage businesses or real estate held in the trust. They are also responsible for filing tax returns and distributing payments to beneficiaries. A trustee is legally liable for their actions—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.

2. 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, such as a bank, or advisers with significant trustee experience. These seasoned trustees have the resources and technical know-how to properly administer trusts and help provide continuity, objectivity and operational experience, especially when serving several generations of a family. The downside of hiring a professional trustee is that they may be less familiar with the needs of your family and less flexible when making distribution decisions.

The other option is to choose individual trustees—typically family members or friends whom the donor trusts to understand and carry out their intentions. Family trustees may need to engage outside investment advisers and other professionals to fulfill their fiduciary duties. If you have an individual trustee in mind, it may make sense to also appoint a professional co-trustee to lend a hand.

3. 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 the trust’s beneficiaries should select (or worst-case, remove) trustees in case your designated trustee resigns or becomes incapacitated.

4. Will the trustee be paid? Trustees are legally entitled to reasonable fees for their services—professional trustees will often have fee schedules. 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 may 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 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. After all, we are The Planner You Can Talk To.

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