Whether you’re already in the process of establishing a trust to control and protect your assets, or you’re considering adding a trust to your overall estate plan, there’s a vital question you should factor in: Who can I rely on to oversee and administer my trust and protect my financial legacy?
Here’s what you need to consider when making this important decision:
The role of a trustee
The trustee you select will be legally bound to manage the trust in accordance with the terms of the trust document and to always act in your and your beneficiaries’ best interests. The fiduciary responsibilities of a trustee can be diverse: recordkeeping, administrative duties, investment management, and communication with beneficiaries, to name a few.
The trustee can be an individual (in many cases a relative) or a corporate trustee — or a combination of both. “You have unlimited options really,” says Kay Ross, Senior Vice President and Wealth Trust Advisor with U.S. Bank Private Wealth Management. “Designating a trustee is one of the most important financial decisions you’ll make. Naming a trusted family member has some advantages, but a corporate trustee has the expertise that a family member typically doesn’t have. That’s why it’s essential to assess all of your options.”
Selecting an individual trustee
Choosing a friend or family member to administer your trust has one definite benefit: That person is likely to have an immediate appreciation of your financial philosophies and wishes. “They’ll know you and they’ll know the beneficiaries,” Ross says. “They’ll come to the table with a lot of personal background, which can be helpful in understanding the needs of the beneficiaries and may have insight into the needs of the beneficiaries and your wishes and intent.
However, naming a family member as your trustee isn’t always as simple as it sounds. What may seem like an honor to you might be perceived as a burden to the person you’re hoping will administer your trust. Furthermore, choosing an individual who is truly well-suited for being a trustee requires thorough and objective vetting on your part. Just because your daughter is a CPA or your best friend has known you for 50 years does not mean that either one of them is the wisest choice.
The trustee you select will be legally bound to manage the trust as it’s outlined and to always act in your beneficiaries’ best interests.
Selecting a corporate trustee
Serving as a trustee is a serious responsibility — which is why it’s smart to consider taking advantage of professional expertise in the form of a corporate trustee. “A corporate trustee has significant expertise and resources, including a deep understanding of fiduciary requirements and extensive investment management experience, Ross explains.
Perhaps equally important, a corporate trustee lends an unbiased and objective approach to the process. “We have a fiduciary duty to carry out the terms of the trust in an objective manner,” Ross adds. “Sometimes family members have a tougher time being objective when it comes to the more difficult decisions involved in administering a trust. We’re detached from those personal conflicts.”
A corporate trustee will still listen closely to your needs and desires and keep your goals paramount throughout the process. “It’s our duty to our clients to always keep their best interests at the forefront. Working with the trust grantor, we develop a relationship to know them and to understand their vision for their financial legacy for their family,” Ross says.
In some cases, the best approach of all might be to name co-trustees — one individual and one corporate entity. “This can be the best of both worlds,” Ross says. “Both parties have a fiduciary responsibility to the person establishing the trust as well as the beneficiaries named in the trust.” In this scenario, you can include provisions that give one party or the other preferential decision-making powers. An attorney can help you navigate the process of naming co-trustees, or you can also ask a financial professional to help you explore this option and how it might benefit your specific situation.
Whatever option you choose, make sure you take enough time to think through your options and explore different scenarios. When it comes to managing your wealth, choosing the right trustee is a crucial aspect of proper estate planning.
View or download this checklist for choosing a trustee of a trust, clicking the button opens PDF checklist document in a new browser tab/window.
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