Sometimes an estate planning attorney will recommend setting up a trust. In a previous newsletter (email firstname.lastname@example.org if you would like it), I devoted an article to many of the common reasons for doing so. However, I did not cover one of the difficulties in setting up a trust – selecting a successor trustee. Dave Ness, President of Raymond James Trust Company, in his usual memorable, pithy way, once told me the requirements for this role: “Talent, temperament, and time.”
Following Dave’s outline, here are some questions to ask when considering a person, or an institution, as a successor trustee:
Is the person detail-oriented and organized? Trustees are required to provide annual accountings to beneficiaries.
Are they familiar with keeping track of which money is considered “principal,” and which is considered “income”? This can make a difference when there are current beneficiaries and remainder (future) beneficiaries.
How familiar is the trustee with the spectrum of investments? Does he, she, or it, understand the risk factors of all kinds of investments? Would he, she, or it, know which investments are in the best interest of the beneficiaries? Trustees are “fiduciaries,” which means they are liable if their investment choices are not considered to be prudent and in the beneficiaries’ best interests.
Would the trustee understand when it is wise to watch pennies, and when it is “pound-foolish”?
Will naming this person cause family tension?
Will they have conflicts of interest?
Do they have problems dealing with other family members?
Can they be sensitive to family dynamics and unbiased in decision making?
Will this person put my interests ahead of his or her own?
Will serving as trustee pose a burden on an individual? Trustees must have time to review and pay bills, review investments and make decisions (jointly or with professional investment managers), and communicate with beneficiaries as necessary.
How is the health of the person being considered? Will the beneficiaries likely outlive this person?
For shortfalls in any of these areas, the estate planning attorney should be consulted on whether any of the following may help:
- Naming 2 or 3 successors as successor trustee.
- Considering a co-trustee or –trustees.
- Considering a “trust protector,” a third-party person who oversees the trustee and can replace them if they are doing an unsatisfactory job.
- Having a family meeting to discuss the provisions of the trust with the successor trustees, attorney, financial planner, and accountant.
Using a corporate trustee in the role of successor or co-trustee can have advantages. Corporate trustees have entire staffs of trust officers and lawyers. They have accounting systems set up to provide accountings and pay bills. Most have salaried staff investment managers with performance-based bonuses. Stocks, bonds, and funds are purchased at institutional pricing with no markup to clients. Trust companies are intended to operate as unbiased professionals, with experience handling reasonable and unreasonable family members. They have loads of liability insurance. Finally, beneficiaries can’t outlive (most) corporate trustees. (If the corporate trustee goes bankrupt, client accounts are protected and can be transferred in-kind to another corporate trustee or custodian.)
Corporate trustees come with a price, of course, normally a percentage of the assets being managed. The decision: is their talent, temperament, and time worth it?