The trustee choice you make is an important estate planning decision. It can have significant consequences for generations to come.
People often select a family member or trust company as their trustee. However, there are pros and cons to both choices. Some of the most important considerations include a.
Trustworthiness
When you set up your trust, choosing a trustee to manage your wealth according to your wishes is vital. It is also essential that your trustee will protect your assets from those who are seeking to take advantage of you or your beneficiaries, even after your death. Having an experienced and trustworthy trustee will give you peace of mind knowing that your estate plan is functioning as it should.
It can be tempting to name a family member as your trustee. However, you must consider the cost of the additional liability insurance that is typically required when a trustee is a family member. Additionally, your family member may need to gain the necessary skills to handle the role adequately, such as the ability to remain impartial in a dispute between beneficiaries or the knowledge and understanding of trust laws.
The trustee you select will have a tremendous amount of power. Like in the rule of trust administration in California, a good trustee will always act responsibly and with full disclosure to avoid conflicts of interest. They must be able to work with different types of people and keep detailed records of all their actions. They must be someone you can rely on to do their job correctly, especially when dealing with high amounts of money and potentially strained relationships between beneficiaries.
It is a good idea to have an open dialogue with your potential trustee and to reevaluate them frequently. This is because the trustee will need to be around for a long time, and, as with most things in life, people’s personalities and circumstances change over time.
Reputation
Whether you set up a trust during your lifetime or after your death, you must be careful about choosing the trustee to manage your assets. A trustee is responsible for managing money and property that you have entrusted to them to benefit someone else (beneficiaries).
People often select family members as their trustees, believing they have insights into the family dynamic that will enable them to anticipate issues and navigate personalities. While this may be true, it is essential to understand that the trustee role also carries significant liability.
A professional trust and estate settlement professional, on the other hand, is experienced in addressing the many legal responsibilities and tax considerations of managing a trust. They also have a well-earned reputation for excellent communication and service.
Another advantage to selecting a professional trustee is that they offer a more objective approach to managing your trust. A professional trustee will not have personal or business priorities competing with their work as a trustee, and they can focus solely on executing your trust. In addition, they can be a more cost-effective option, especially if you anticipate contention among your beneficiaries.
Flexibility
As you consider trustee candidates, it’s important to remember that they will have a tremendous amount of power and independence under your trust document. Sometimes, a family member or friend may be the best choice. They are most familiar with your family dynamics and will understand your wishes at a personal level. In other cases, a professional trustee, such as an attorney or CPA, might be the right choice. They can focus solely on trust administration and bring experience and specialized skills.
Whatever type of trustee you choose, it’s essential to take your time, discuss it with your candidate(s), and revisit your choices often. This will ensure you have a person who fully understands the role’s honor and responsibility and can provide regular, thorough communication with your beneficiaries.
It’s also possible to incorporate a disclaimer trust into your estate plan, which may allow you to avoid some state income taxes by avoiding heirs being subject to the tax in states like California, New York, and New Jersey. However, doing this requires careful planning with your lawyer and should only be done with the help of an experienced estate planner. It’s important to remember that, even with the most thorough and well-written trust document, problems can arise. So it’s crucial to build flexibility into your trust to allow trustees and other parties to resolve conflicts and make decisions.
Experience
People often choose family members for trustees because they want to keep things “in the family.” While that’s a reasonable goal, it’s essential to consider whether the person you select has the skills, time, and interest to administer a trust. Moreover, the fact that someone has been a great friend or co-worker does not necessarily make them an effective trustee.
If you select a family member, your estate planning lawyer can help draft a document providing a successor or additional trustee should the original trustee become incapacitated or no longer wish to serve. We can also include provisions that ensure a family member who has served as a trustee for an extended period will not be entitled to compensation for that service.
Professional trustees have extensive experience managing assets and navigating complex legal issues, which can benefit your estate. Choosing an experienced trustee can increase the efficiency of the administration process, reduce conflict, and enhance asset protection. A trust company, meanwhile, can take a broader perspective of the overall goals of your estate and may be better able to say no when necessary. For these reasons, many Grantors appoint a Trust company as trustee along with a trusted family member or friend. Your specialized estate attorney can discuss these options with you in detail.