What should you look for when deciding on a trustee of a family trust?
How do you decide on a trustee?
Is it best to choose an impartial professional or agency as an estate trustee? (Yes, under most circumstances.)
Filling the very important position of estate trustee requires careful consideration of these trustee ranking areas:
- Fiduciary Responsibilities
- Mentoring for Beneficiaries
- Special Assets
- Staff Depth
Qualifications of a Good Trustee
First, it is important to remember that a trustee is going to have legal title of the property in the trust. While the beneficiaries will have equitable title to the property, and can hold the trustee liable if they don’t exercise their duty for trust assets and distribution consistent with their legal duties, they will not have direct access to, or control of, the property held in trust. (This applies to any type of trust.)
However, the fact that the trustee has legal title to the property often causes many trustees, including corporate trustees, to covet the asset as their own. Individual or corporate trustees, as well as assigned managers of trust assets, may consider the beneficiary to be a pesky party to be served as a side issue to controlling those assets, to support the costs and overhead of their efforts and earn considerable profits.
So, the trustee duty is typically recognized to be administrative and fiduciary. If trustees are going to be providing administration duties and reporting about the assets, they have an obligation to make sure the assets are invested consistent with their fiduciary duty, and to make distributions consistent with the documented instructions.
A secondary, if no less important, function of a trustee is to act as a mentor to the beneficiaries, so when assets move from the trust as distributions, the beneficiaries are ready to assume responsibility for them. However, many trustees often are not interested in the mentoring aspects of the role at all, which is to make sure the beneficiaries ultimately rise to the same capability that the trustee has.
Individual vs. Corporate Trustee
Many plans have individual trustees because they are less expensive and because the trustee knows the beneficiaries, However, when family members are trustees for other family members, that changes the nature of holiday get-togethers, because family members are getting together with their bankers, to the extent that other family members have been given responsibility over their trust assets.
Families often want to choose a family attorney or a valued friend as trustee. Unfortunately, frequently they are not trained as qualified investment professionals or counselors. The "Catch-22" problem is that qualified investment professionals violate the securities rules when they serve as a trustee.
The ideal trustee is a corporate trustee that also focuses on mentoring, and they almost don’t exist. Given the marketplace that does exist, the best way to address this issue is to provide instructions in the trust to make it the trustee’s duty to ensure that mentoring occurs.
Ideally, to meet those requirements, trust makers should select a non-family member. Consider a corporate trustee, as long as the cost will not become exorbitant, who will assume both the fiduciary and administrative responsibilities, as well as responsibility for the well-being and mentoring of the beneficiaries. Beneficiaries need to understand what it means to be an excellent beneficiary, what their gaps are, and how to determine they are on a path to becoming an excellent steward of the assets when they become fully available.
When considering the qualifications for choosing a trustee, keep in mind that:
- The person chosen actually needs to understand what being a trustee means, that there is training and experience that goes into it.
- Personal relationships with any beneficiaries should probably not exist, so those relationships are not affected. No matter how hard the parties try, once someone assumes the responsibilities of a trustee, it is unlikely that it will not affect an existing relationship a beneficiary.