A snap decision made so that documents can be prepared on a timely basis is not the way to pick a trustee. This person or persons will be making big decisions on your behalf, so you want to take the time to make the best possible choice.
You have to pick some people or institution to help manage your estate after you’re gone. In your will, you need to pick an executor, a guardian (if you have children), and a trustee if there is to be a testamentary trust. If you have a revocable or irrevocable trust, you need to designate a trustee, because he or she will control everything. The selection of a trustee is the one issue that brings people back into my office most frequently, because our relationships with persons and institutions change over the years, sometimes for the better and sometimes not, and the selection that made sense at one point may no longer be appropriate some time after that selection has been made.
Clients often express concern to me about the costs of an institutional trustee, and those and other concerns are justified. At the same time, if you put someone in charge of your estate who has no idea what they are doing, that too causes problems. I have concluded over the decades that there is no perfect solution to the selection of a trustee, so care needs to be given to that selection.
Wealth Advisors’ recent article, “Picking a Trustee – 4 Easy Steps,” explains that a trustee follows the instructions of the trust document. A trust can be created in your Will when you die and/or in a separate trust document while you’re alive. Either way, selecting a trustee is critical. A trustee has considerable authority, including:
- The amount of money and when people receive it from the trust;
- The investments allowed in the trust;
- The ways to insulate the trust assets from bad people; and
- Other complex trust accounting and administration rules.
You have two ways to go as far as choosing a trustee: an individual person or a trust company. Either one could be right for your situation, so there’s no one formula for a perfect trustee. However, there are a few differences between designating a person and a trust company as trustee, including the following:
- An individual might not charge a fee as trustee, while a trust company does.
- An individual can abscond with trust assets, while a trust company has checks and balances, along with insurance.
- An individual may let his own personal judgment get in the way of objectivity with beneficiaries, while a trust company legally can’t.
- An individual will get older and may get sloppy with the trust rules; that is far less likely to happen with a trust company.
- Trust rules, taxes and laws change, and a trust company’s focus is on those changes.
An estate planning attorney will be able to provide further recommendations as to what skills the trustees will need for their tasks, and discuss whether your situation would be best served with an individual or a trust company.
Reference: Wealth Advisors (November 19, 2017) “Picking a Trustee – 4 Easy Steps”