Trusts are extremely flexible tools that can serve a variety of estate and tax planning goals. When creating a trust, grantors tend to focus on the provisions outlining how, when and to whom the trust assets are to be distributed. But ultimately, the trustee will be responsible for actually implementing those intentions. For that reason, it is critical that you select a trustee who will fulfill the obligations of the role with objectivity and impartiality.
The person you have in mind may consider it a great honor, but serving as a trustee requires technical skills, sound judgment, discretion, integrity, objectivity and the ability to deal with all the family members involved, including both current beneficiaries—who are entitled to assets immediately—and remainder beneficiaries, who will not receive distributions until some point in the future.
In addition, certain kinds of trusts may call for trustees with particular qualities. For example, with a marital trust that is designed to not only minimize estate taxes in a couple’s estate but also to provide for a surviving spouse’s financial needs, it’s crucial that you feel your trustee can relate well to your spouse. Or, if you are establishing a special needs trust to maximize outside resources while providing supplemental benefits to a disabled individual, you may want trustees with a particular understanding of the disability and needs, as well as the complicated legal requirements for a special needs trust.
Choosing Well—For Now and For Later
The primary role of a trustee—holding title to property for the benefit of another—sounds simple enough on its surface, but selecting a trustee is really a complex decision with many nuances. Let’s look at some potential trustee candidates and the potential pros and cons of each:
A Lawyer or Accountant
This person may be an expert in planning and crafting trust arrangements or in financial matters, but may or may not have the capacity for all of the tasks involved in trust administration. As a firm that concentrates in estate planning and administration, my staff works with families and their trusts to ensure that all of the trust matters are handled properly.
A Family Member or a Friend
The biggest benefit to naming a family member or a friend as a trustee is that this person is familiar with your beneficiaries. However, he or she but may not have the time or depth of knowledge to handle the demands of administering a trust. Also, by placing one person in this role of determining how and when a beneficiary would get money, it can create undue strain in their personal relationship with the beneficiary
Institutions with substantial fiduciary experience and a deep bench of professionals offer the expertise, stability, and permanence that individual trustees cannot provide. This can be especially helpful for multigenerational, long-term family planning. However, an institutional trustee may not be as familiar with all of the players named in the trust document. Also, depending on the size of the trust, corporate trustees can charge high rates to provide their service.
Often, grantors will name both a family member or trusted friend and an independent professional trustee as co-trustees. The family member or friend can serve as the “touch point” for the trust’s beneficiaries, providing the perspective of knowing them well, while the professional trustee can be relied on for investment, administrative and tax expertise.
In creating an arrangement that describes how wealth should be managed and used for the benefit of those you love, it is, of course, crucial to state the terms and provisions of the agreement with thoughtful care. However, it is of equal importance to consider carefully the choice of those whom you are entrusting to carry out your wishes.
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