As your estate planning attorney will tell you, there are many different types of trusts that can be used to achieve a number of goals. The right trust can protect your assets, provide exacting limits on how assets are distributed and help minimize tax liability. However, there is one detail you’ll want to get right.
Kiplinger’s recent article asks, “What Type of Trust Solution is Best for You?” The article notes that people often make one common mistake when setting up their own trusts—they chose the wrong person (often a family member) to administer it when the time comes. Since the “grantor” of the trust wants to be sure her wishes are faithfully carried out, she will need to designate a trustee who can competently and effectively handle the role. As I tell my clients, a trust only is as good as the trustee administering it.
Trusts will affect people about whom the grantor cares, so it’s natural that those creating trusts often feel obligated to name a person close to the family as trustee. It can be efficient for the trustee to know the grantor and the beneficiaries. However, it may create issues with the administrative, fiduciary, and legal requirements that the trustee is tasked with executing.
In some situations, you may want to hire a trust company or bank to serve as corporate trustee. They have the expertise and capacity to conduct the administrative and reporting tasks, and the personnel to support long-term asset protection and distribution strategies. However, a corporate trustee may not be familiar with the grantor or the beneficiaries and may not be able to provide the level of care or accessibility the family may need. Many people thus consider naming their CPA as their trustee.
Trusts can be dynamic tools for integrating tax planning into an estate plan to efficiently transfer wealth to heirs. Trust assets can continue to grow tax-deferred or tax-free (depending on the account), for many additional years. A trust can be written to support whatever objectives the grantor has and can provide as much flexibility or latitude as he wants, provided that the trust structure and distribution schedule comply with IRS requirements.
Take this decision very seriously. Devote the time needed with your trust attorney to identify the best individual or entity to take on the responsibility of your trust. Your attorney should understand the goals you have set for your trust and your legacy. Once this is settled, you’ll be able to breathe a sigh of relief.
Reference: Kiplinger (April 30, 2018) “What Type of Trust Solution is Best for You?”