Selecting a trustee: talent, temperament, and time. Sometimes an estate planning attorney will recommend setting up a trust. One of the decisions to make in setting up a trust is selecting a successor trustee. Who is the best person or persons to step into this role if you are unable to? Should it be a family member or a professional trust company?
The requirements for this role often boil down to talent, temperament, and time.
Following this outline, here are some questions to ask when considering a person, or an institution, as a successor trustee:
Selecting a Trustee: Talent
First, talent. Is the potential trustee detail-oriented? For example, 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 both 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 in the beneficiaries’ best interests at all times.
That said, would the trustee understand when it is wise to watch pennies, and when it is “pound-foolish”?
Selecting a Trustee: Temperament
Next, temperament. 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?
Selecting a Trustee: Time
Finally, time. Will serving as trustee pose a time burden on a person? Trustees must have time to:
- review and pay bills,
- review investment decisions (jointly or with professional investment managers), and
- communicate with beneficiaries as necessary.
How is the health of the potential trustee being considered? Will the beneficiaries likely outlive this person?
For shortfalls in any of these areas, an estate planning attorney should be consulted on whether any of the following may help:
- Naming two or three people as co-successor trustees.
- Considering a current 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.
For some, a corporate trustee has distinct 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. They purchase stocks, bonds, and funds at institutional pricing with no markup to clients.
Additionally, trust companies 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.
Of course, corporate trustees come with a price. Normally the fee is a percentage of the assets being managed. A family member may not charge anything although by some state statutes, they can. The decision to make is whose talent, temperament, and time is worth it.
For a listing of local estate planning attorneys, look up your local Estate Planning Council at https://www.naepc.org.