By Jonathan J. Robertson, CFP®
When people are updating their estate documents, they frequently leave assets in trust for someone else. The key concept behind the idea of a trust is separating use and beneficial enjoyment from control of the asset. Some common reasons for creating trusts are: (1) desiring someone with greater financial skills to manage the assets; (2) wanting to control or influence who receives the assets after the trust beneficiary dies; (3) having asset protection for lawsuit or divorce; or (4) reducing potential estate taxes.
Frequently people decide they want to use trusts as part of their plan, but are left scratching their heads when they try to select a trustee. A trustee is the person or entity who administers the property held inside the trust.
Some considerations for selecting a trustee are listed below. Think through these items in advance of your meeting with your attorney to provide a richer, clearer conversation.
Individual, or Corporate?
The first decision in selecting a trustee is choosing between an individual or corporate trustee. Individuals have appeal because they can be more hands on and customized to the needs of the beneficiary. An individual may have a better understanding of your wishes and the beneficiary’s needs. The benefits of a corporate trustee are the potential for professional management as well as continuity—even if the trust company goes out of business, there will likely be a qualified successor ready to step in.
Choosing an Individual
If you select an individual to serve as trustee, below are some considerations:
1. If the trust is for a minor child, do you want the child’s legal guardian to also be trustee? One person filling both roles is convenient, more efficient, and could help avoid conflict between the guardian and the trustee. However, the person who is best at managing money may not be the best guardian, and you may lose potential third-party oversight by having one person fill both roles.
2. If the trust is for a minor child, do you want the child to eventually become his/her own trustee or co-trustee at a certain age (or after learning certain skills)?
3. Consider relationship dynamics. Do the potential trustee and beneficiary currently have a good relationship? Would serving as trustee sour this relationship or other relationships?
4. Could the trustee serve as a teacher or mentor to the beneficiary? Is the trustee appropriately assertive in being able to say “no” to the beneficiary?
5. In addition to having financial skills, does the potential trustee share your values around money and spending?
6. Consider the age of the trustee and the potential length of the commitment.
You will also want to consider the costs associated with your selected trustee. Corporate trustees have minimum account sizes, and fee schedules may be high relative to the size of the trust. If you decide a corporate trustee is best for you, obtain a fee schedule and be sure to receive periodic updates as fees and minimums change. An individual trustee may offer to serve at no cost. Give this offer serious consideration. If someone serves with no fee, they are doing you a favor and could be more likely to shirk responsibilities. Trusts may last for many years and serving as trustee requires a commitment of time and energy. A trustee who does good work will earn his/her fee.
If all of this seems overwhelming, you may take comfort knowing there are some options. You can name several potential trustees, so that if someone is unwilling or unable to serve, that person can resign and the alternative trustee you named will be able to step in. Your attorney may also talk to you about giving the trustee the power to appoint a successor trustee or giving the trust beneficiary the power to remove a trustee.
Thinking through these questions in advance of appointing a trustee will provide for a deeper, more thoughtful conversation when you meet with your attorney.
Jonathan J. Robertson 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.
As a member of the Financial Planning Team, Jon works closely with clients to understand their goals in order to develop and implement a comprehensive financial plan to achieve those goals. His legal background is a great resource for Abacus clients. 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 $1.5 billion on behalf of its 240 plus families, Abacus consists of a team of multi-disciplinary experts who work collaboratively to serve its clients.