Tips For Naming A Trustee
Trust is priceless. But it isn’t universal.
Consider the person you trust the most in the world. Now ask yourself: Would you trust them to dismantle a bomb or pull your wisdom teeth?
With many tasks, general trust only goes so far. Expertise is equally important. That’s true for bomb squads, dentists…and managing trust funds.
What is a trustee?
Picking the right trustee requires you to understand the role. Trustees must:
• Follow the rules of the trust and act impartially.
• Hold and protect the assets in the trust, as well as distribute assets to beneficiaries.
• Manage or invest assets when required.
• File tax documents, communicate with beneficiaries, and handle any required paperwork.
With a revocable living trust, the grantor (person who funds the trust) can also be the trustee but will need to name a successor trustee. You can also name more than one trustee.
It’s not uncommon for people to read trustee responsibilities—following rules, acting impartially—and simply name a person they generally trust. But a trustworthy friend or family member may run into problems when it comes to filing taxes or handling investments. (Beyond that, they may not want to do those things.)
In those cases, tapping a specialist can help.
What is a professional trustee?
Unlike a friend or family member who likely has a full-time job outside of managing trusts—one that may or may not include any kind of expertise around tax, law, or asset management—professionals are trained to execute the tasks required of trustees. This means they are trained to administer your trust according to both the law and your wishes.
Here are a few of the pros and cons of bringing in a professional to manage your trust, starting with the pros:
Expertise. It can be hard to know at the outset just what tasks may be required of a trustee in the future; a professional will be equipped to handle the basics and any changes or curveballs that may arise.
Objectivity. Even if you trust your friends and family, it’s hard to be objective about situations that you are part of or close to. Generally, professionals won’t bring any personal biases to the table.
Continuity. Professional trustees tend to be associated with a company, meaning if they are unavailable, retire, or die, you should still have access to a professional.
Ease. The administrative tasks of a trust—from taxes to communication to dispersals and investment management—can be time consuming. Beyond that, they must be documented properly. This can be burdensome for anyone not trained in the task.
That’s not to say that professional trustees are the only way to go—there are drawbacks involved as well:
Cost. As with any professional service, hiring a trustee costs money. Fee structures vary—the trustee might charge an annual fee separate from the trust or might deduct their fees from the assets in the trust. Fees usually vary based on the size and complexity of the trust.
Impersonal. While objectivity can be a benefit when it comes to following the rules of the trust, circumstances aren’t always black and white. Unless the professional trustee knows the grantor and the family, or works to understand the dynamics at play, it’s possible the spirit or intentions behind a trust may get lost in rigid execution.
Less control. While hiring a professional saves you time, it also requires you to hand over some of the control involved. While professionals are required to be transparent according to the rules of the trust, you’ll likely have less oversight than if you were to manage a trust yourself.
Should you hire a professional trustee?
As with most things, deciding who to trust with your trust comes down to your personal circumstances and preferences. In general, the more complicated your trust (or the more complex your family dynamics), the more you may benefit from working with a pro.
Keep in mind:
• You may be able to name joint trustees to blend the benefits of personal and professional.
• Trustees tend to work closely with financial advisors who usually understand the familynand financial dynamics at play.
If you have questions about whether a professional trustee makes sense for you or would like to know which trust companies we’ve worked with in the past, reach out to discuss.
This content is developed from sources believed to be providing accurate information. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.