If you have created Irrevocable Trust that may last for a decade or two, selecting the right trustee is crucial to the trust’s success.
Initially you may think that a family member, such as a sibling (“Uncle Bill” to your children), will be the best choice as trustee. After all, Uncle Bill understands the personalities and varying needs of your children. And Bill has always been frugal, so he will likely keep the costs of administering the Trust down. These may be good reasons to consider a family member, like Bill, to serve as trustee.
However, Uncle Bill may or may not be equipped to handle all of the fiduciary obligations of an Irrevocable Trust. As a responsible fiduciary he may need to hire or consult with legal, investment, and tax advisors to ensure that the trust is being distributed, managed, and invested as you intended, and to minimize the risk of lawsuits. These expenses can add up, and may eventually cost more than the fees a corporate trustee, such as a bank or trust company, would charge. Non-professional trustees can be overworked and unappreciated, and can even be sued by a disgruntled beneficiary.
There are important factors to consider when appointing a trustee. Here are five reasons why you may want to choose a corporate trustee over Uncle Bill, or perhaps structure a ‘team’ that pairs Uncle Bill with a co-trustee or two, each with duties based on their respective strengths and experience:
- A corporate trustee doesn’t have a personal life that gets in the way. A corporate trustee won’t become ill or die, get married or divorced, have children or grandchildren, go on an extended vacation, move to a foreign country, or get distracted by day-to-day life, all things that can get in the way of properly administering your trust.
- A trustee must be unbiased. A corporate trustee, or a non-family member, won’t favor one of your children over another (unless that’s what you intended) and will be more likely to act in an unbiased manner in making distributions that benefit both current and (possible) remainder beneficiaries.
- A trustee avoids conflicts of interest and self-dealing. A responsible fiduciary will never sell the family company or vacation home (that you intended to eventually go to your grandchildren) to him or herself, or to a friend, at less than fair market value.
- A prudent trustee invests appropriately. A prudent trustee won’t invest all of the trust assets in a money market, real estate, or hedge fund that a friend recommended, but will diversify the portfolio to benefit the beneficiaries and maximize the returns responsibly (subject to any specific instructions you list in the trust agreement).
- A trustee has expert knowledge (or knows when to call on the experts). A corporate trustee won’t need to hire a slew of outside attorneys and accountants to interpret the trust agreement, and will keep current on changes in the laws governing trusts, fiduciaries and taxes. But with the right team of co-trustees and advisors, Uncle Bill may be able to accomplish the same end result.
The duties and responsibilities of a trustee are extensive: From managing the requests and expectations of the beneficiaries to providing periodic reports of the trust assets, liabilities, receipts and disbursements to the current and remainder beneficiaries, to prudently investing the trust assets, to preparing and filing all required tax forms. The work of a trustee can seem like it never ends.
Because of the range of duties and responsibilities, using a corporate trustee, or possibly pairing Uncle Bill with a corporate trustee, may be the best option for your Irrevocable Trust.
If you have questions about selection of a trustee, or use of corporate trustees, you’re welcome to contact our office. We can assist you in selecting the right individual or entity to serve as your trustee.