5 Considerations When Choosing A Trustee

5 Considerations When Choosing A Trustee

It is common to create various trusts in estate planning. Some trusts are created pursuant to the terms of a will (called a testamentary trust), and some trusts are created by a separate document. There can even be trusts within a trust. The one responsible for managing the trust and carrying out the goals set forth in the trust is called the trustee. It is not unusual that a family member, accountant, attorney, bank or trust company or even a friend, is named as trustee. There are even private trustees. Choosing the right trustee is crucial.

Factors in choosing the best trustee include the following:

  1. Trustworthy.

Anytime you choose a trustee or any fiduciary, you must be able to trust the one chosen. A trustee is a fiduciary – which means being held to a higher standard. A person who likes to gamble or has another addiction would obviously not be a good choice since you might not be able to trust that they would not take too much risk with the assets held in trust. Neither would someone who has been convicted of a felony or of a crime of moral turpitude. The trustee should be good with money or at least know to hire an advisor that has financial acumen.

  1. Time.

Depending on the amount of assets and the type of trusts, it may take a lot of time to manage a trust ranging from filing tax returns to investing to dealing with creditors to being able to do an accounting or to manage property in the trust. Communications with a beneficiary can even be time-consuming. Individuals who serve as trustees often lack the time required to serve as a trustee.

  1. Cost.

It is not unusual to pick a family member who often serves without compensation or with little compensation. If there are limited assets, then an individual is often the better choice. Many banks require at least $1,000,000 and sometimes $5,000,000 in assets to serve as a trustee. Trust companies often do not require as much (but still could require $1 million in assets). Corporate trustees and banks often have a fee schedule which is based on the amount of assets under management. Generally, the larger amount held in trust would result in a smaller percentage fee. However, the type of assets held in trust or the type of trust could also impact the fixed fee. Typically, fees range from 0.5% to 2%. There may also be a minimum administration fee. Private fiduciaries such as accountants often just charge their hourly rate.

  1. Expertise.

As set forth above, sometimes it is best to have a professional or corporate trustee whether it is running a business or compliance with public benefit laws or any other complex matter. Individual trustees might mismanage the assets by error or mistake. Banks or other corporate trustees are audited internally and the government regulates the management of trusts by such entities. Corporate trustees also carry liability insurance.

  1. Reducing risk for conflict with a beneficiary.

It is not unusual that one family member is asked to be trustee over a trust for the benefit of another family member. The beneficiary often thinks the assets held in the trust is their money and can’t understand when the trustee fails to distribute to them the way they want it and when they want it. This often leads to conflict. Sometimes the family member trustee likes the power trip of being in charge and is too strict. So, even though family members may know the family dynamics, sometimes it is best that a family member does not serve as trustee or at least have another trustee such as a corporate trustee to reduce risk of conflict. If there is a concern about a bank or a professional or an individual acting as a trustee, then a rust protector can be appointed in the document to remove a trustee.

If interested in learning more about this article or other estate planning, Medicaid and public benefits planning, probate, etc., attend one of our free upcoming Estate Planning Essentials workshops by clicking here or calling 214-720-0102. We make it simple to attend and it is without obligation.

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