The Role of Trustee in Family Governance
April 2, 2023
By Jonathan J. Robertson, CFP®
One of the most important decisions when you create an estate plan is selecting a trustee to manage your assets. You have many options when selecting a trustee for a trust. Some people choose: (1) the beneficiary, (2) another family member, (3) an individual outside of the family, or (4) an entity such as a bank or trust company. There are pros and cons to any path you choose. One lens through which you may want to consider this decision is the lens of family governance to ensure that your wishes are carried out after your death. It is always beneficial to make sure that your selected trustee interacts well with your beneficiaries, understands your values, and can manage assets and/or money well.
How will the trustee interact with the beneficiaries?
One role of the trustee is to manage the trust assets on behalf of the beneficiaries, which does not necessarily mean that the trustee will do what the beneficiary wants. Sometimes the relationship between the trustee and the beneficiary can become contentious, especially if the trustee’s decision(s) conflict with the beneficiary’s wants. If the trustee has other interactions or relationships with the beneficiary or beneficiary’s family, the conflict may spill over into the rest of the family.
If you choose a family member to serve as trustee, be mindful of the family dynamics. Will selecting the older sibling to serve as trustee for a younger sibling stir up some underlying tensions? Will the trustee and beneficiary be able to separate their personal relationship from the relationship of trustee and beneficiary? Trustees sometimes make difficult decisions, and, if the trustee is family, that person could be setting himself up for some tense family gatherings!
Another factor to consider is that most trusts have more than one beneficiary, and often these beneficiaries have competing interests. Your trustee will need to be able to navigate these challenges. For example, the trust may benefit your spouse for his/her life, and then the trust will benefit your children upon your spouse’s death. Every dollar spent on your spouse reduces the amount your children will inherit.
Does the trustee share or understand your values?
When you select a trustee, the trustee will be making financial decisions on behalf of your loved ones. You may want to consider the trustee’s assertiveness, level of caring, financial savvy, and ability to teach and mentor. The trustee is not you and will undoubtedly make some decisions differently than those you might have. Choose a trustee who will make decisions in line with your value system. Even if the trustee does not have the same values, ensure the trustee understands your values and will feel comfortable making decisions within that framework. A non-binding letter detailing what is important to you can be helpful. For example, the role of the assets in education, the need to work and save, the ability to live comfortably, the ability to be entrepreneurial, and/or the ability to support a family could be important to you.
How will the trustee manage shared assets?
You may own assets with other people. Perhaps you own a business with multiple partners, or maybe you own real estate with your siblings. If you leave these assets in trust, your trustee will need to make ownership decisions with the other owners. Think of the decisions you currently make with these assets. With real estate, you may need to renew a lease, make repairs, or consider an offer to sell. The trustee will have to make these decisions in the best interest of the beneficiaries, which can be challenging. Ensure that your chosen trustee has the necessary skills to successfully negotiate these business decisions. If the trustee is already a co-owner of the asset, the trustee may face a conflict of interest. For example, perhaps it is better for the trustee personally to sell the asset to a third party, but the beneficiary would prefer to keep the asset.
Selecting the trustee who will manage assets best for your loved ones may seem like a daunting task as this can be one of your most important life decisions. Putting some thought into family relationships and the person’s abilities to carry out your wishes will help ensure positive outcomes for both the trustee and the beneficiaries.
Jonathan J. Robertson, CFP® is a 2004 magna cum laude graduate of Texas Tech University with a B.S. in Personal Financial Planning. After graduating from Texas Tech, Jon earned his Juris Doctor from the University of South Carolina School of Law in May of 2007, passed the South Carolina Bar in July of 2007, and joined Abacus in September of 2007. Jon is one of seven Abacus shareholders.
Abacus is a financial advisory and investment counsel firm known for its passion in creating abundance for clients and family businesses through skillful listening and smart financial decision making. Managing over a $1.7 billion on behalf of its 250 plus families, Abacus consists of a team of multi-disciplinary experts who work collaboratively to serve its clients.
