CELEBRATING OVER 40 YEARS OF FINANCIAL MANAGEMENT

Who Do You Trust?

By Daniel Sexton, CFP®

If you have a trust, do you know who is listed as your successor trustee?  When was the last time you thought about it? Choosing a successor trustee can be a difficult decision.  After all, the successor trustee is responsible for managing your trust assets and upholding the provisions of your trust after you are deceased or become incapacitated.  This is no easy task and often comes hand in hand with family conflict, high emotions and risk.

Before making a choice, consider the following:

  1. What is the relationship between the successor trustee and the beneficiary(s)? Is the successor trustee also a beneficiary?
  2. Where does your successor trustee reside? Distance will make things difficult.
  3. How complex are the trust assets and provisions? Is the trust intended to continue indefinitely? Are trust assets comprised of any real estate, family business assets or highly valued collectibles?
  4. How many successor trustees are listed? Avoid naming multiple trustees as this can lead to disagreements and delays.

Most people choose a family member or close friend to be a successor trustee.  However, there are other options available and there are pros and cons to each.

Family or Friend: This is a common choice and makes a great deal of sense on several fronts. First, this person would have a deeper understanding of family history, relationships, and the goals of the trustors at the onset.  However, choosing a family member or close personal friend comes with a caveat.  Choose one with a background in business or finance or both. The benefits here are clear because much of what a successor trustee does involves making financial decisions and dealing with banks, financial institutions, attorneys, real estate experts, CPAs and other advisors.  I offer an alternative consideration, choose the person you believe has the greatest integrity.  Obviously a great deal of trust is placed in a successor trustee.  A trustee with high integrity will strive to do the right thing above all else. I personally gave this quality a great deal of thought when choosing the successor trustee of my family trust. Though most trusts state the trustee is entitled to charge a fee for their work (and I highly recommend they do), the family or friend successor trustee does not often charge for their time or effort out of guilt.

Professional Private Trustee or Fiduciary: This option is not well known and unfortunately is not discussed often enough.  Simply put a Professional Private Trustee is a trustee for hire.  There are several advantages to naming a professional trustee; above them all are objectivity and efficiency while maintaining a personal approach. Through their experiences they have the contacts for independent tax, legal, and financial advisors to fit the unique nature of any estate or trust, including specialized areas such as art, cars, or jewelry that a family member or friend may not.  Unlike a Corporate Trustee, Private Trustees have the flexibility to meet with the trustors and beneficiaries making their service a much more personal experience. This personal approach, along with their objectivity, can help navigate family conflict.  Expect the fee for a Private Trustee in the range of 1 to 2% of the trust value.

Corporate Trustee: The Corporate Trustee comes in the form of a large institution such as a bank or trust company.  They have deep resources and experience within the firm to rely upon (for example, investment management and tax consulting). Another advantage of a Corporate Trustee is their longevity that could be well suited for trusts with young beneficiaries, generation skipping provisions or endowment provisions. However, they tend to be bureaucratic and slow to respond. Also beware of their motivation to manage financial assets; recent trends have Corporate Trustees shying away from illiquid assets such as real estate and businesses.  Cost tends to be higher for this option exceeding 2% of trust assets.

Before you make your choice consider all of your options.  Review your trust document and take into account what you want to accomplish with your trust.  Do you need to make a change? What are the assets?  How might the beneficiaries react when you pass or become incapacitated?  If you think you may need to update your successor trustee call your attorney or we would be happy to facilitate a conversation.