** This article has been revised from its original version which was published on February…
As time goes on, many clients see the value of creating trusts to protect family members such as a spouse, children and/or grandchildren. Trusts can be used to protect a spouse if in failing health. Trusts can be used for a loved one with special needs or to protect assets for a child who has creditor or marital problems. Other trusts can be used to save estate taxes.
The decision to appoint a trustee is one of the most important decisions you will make. While our clients understand the value of establishing trusts, they are also concerned with naming the right trustee who can handle the responsibilities that will be asked of them.
We discuss these common choices for trustees with our clients:
- A family member,
- A friend,
- A professional trustee such as an attorney or accountant, or
- A corporate trustee such as a bank or trust company.
As you consider the pros and cons of each choice, be sure to keep the following common misconceptions in mind.
1.) Should I choose to use a professional fiduciary to handle my estate—it will cause turmoil among my family.
After assigning a trustee, you and your family should have peace of mind, not anxiety. Professional trustees understand that giving someone else control of your assets can be worrisome. For example, when someone chooses to task us with the responsibility of handling their estate, we make sure to be clear about our experience and the type of services we can provide. Additionally, when we execute our irrevocable trusts, we give you the freedom to replace your trustee at any time.
2.) Professional or Corporate Trustees are expensive—my family members can serve for free.
Serving as a fiduciary takes time and effort. It is also a potential liability, as beneficiaries can hold a fiduciary personally accountable if the fiduciary does not perform his or her duties properly. Being trustee is a job.
Because of this, in general, trustees are entitled to receive “reasonable compensation” for their services. Whether a family member or friend asks for compensation is another story. Fees may vary, depending on the size or complexity of the trust, however, whether an individual or company is assigned, the entitlement to compensation still holds.
Even when an individual is willing to waive their right to compensation, there are other “costs” to consider. This appointed individual might have to make sacrifices in order to find the time to perform their duties as fiduciary.
Also, there are many different services that an individual can potentially need to accomplish their duties as fiduciary. An individual rarely has prior experience as a fiduciary or expertise in handling the investment, record keeping and general administration responsibilities and therefore, will have to outsource these tasks. When working with a professional, they either have the help on staff or know of trusted and experienced professionals to help with the task.
Finally, we have witnessed an unfortunate event occur multiple times: a family member or friend intends to forgo their compensation and then their circumstances change. The individual recognizes the level of sacrifice they’ve made or has a turn in their financial situation. Compensation suddenly becomes an issue. Often this situation causes the undermining of lifelong friendships and in some cases, lawsuits follow.
3.) My trustee is on good terms with everyone and will be able to keep peace in our family.
Business and personal relationships do not always mesh. Whether you consider serving as a trustee a business relationship or not, it is. Although there are some personal aspects to the job, overseeing an estate or trust involves the management and distribution of property. In some circumstances, selecting a family member can be disastrous.
Legal confrontations among family members are more common than many people tend to think. For example, if a house is sold to a related party, or an investment seems to be allocated incorrectly, or distributions do not seem fair and equitable, the only way to settle an argument and for a beneficiary to protect their interest may be to hire an attorney.
For these reasons, and to keep peace in the family, we would suggest that you look for a fiduciary who is experienced, competent, able to provide transparency and respects the rights of beneficiaries as outlined in the law and the trust document.
Making Your Decision
Ultimately, selecting a trustee is a personal decision. If available, an individual fiduciary may be the most appropriate, depending on the complexity of your estate. However, it is important to consider whether the fiduciary will be equipped to handle the amount time and effort needed to oversee the estate or trust. Also, consider if you feel confident that this duty will not cause turmoil among family and friendships.
When making your decision, keep these trustee responsibilities in mind:
- Overseeing business interests
- Keeping records
- Paying expenses
- Safeguarding and distributing assets
- Managing liquidity needs
- Managing investments
- Maximizing government benefits, if appropriate
- Maintaining and selling real estate
- Resolving beneficiary disputes
- Paying expenses
- Accounting to beneficiaries
- Valuation of assets
- Communicating with attorneys, accountants, insurance agents and other professionals
Russo Law Group, P.C. is committed to ensuring that your wishes are fulfilled, your legacy is preserved, and your beneficiaries are protected. Contact us for more information on our trust and estate administration services.