Who Should Be Your Trustee?

trustee

Oftentimes I am asked for a definition of a Trust.  I think that Judge William Rhodes Harvey had a good definition.

“Trust, he said, protects the living and serves the dead, befriends the widow and orphan, guides the aged, strengthens the weak, curbs the improvident, represents the incompetent, advises the hesitant, plans for the inexperienced, encourages the timid, administers to charities, gratifies the whims of the eccentric, and otherwise justifies its claims to be an ‘incorporated’ friend”.

In the context of his definition, I really think he was describing the role of the Trustee for the Trust. Who should act as your trustee and how much power should you give to your trustee?

Your trustee can be an individual, such as a friend or family member, or your trustee can be a professional, such as a trust company. Or, your trustee can be a combination of an individual and a professional.

The biggest advantage to having an individual such as a friend or family member as trustee is familiarity.  An individual trustee may or may not charge trustee fees even though they are entitled to full trustee fees. However, the individual trustee may not live long enough or have the mental capacity to fulfill his or her obligation as trustee, especially if the trust is multi-generational. Even though the individual trustee may be most familiar with you and your family, he or she may not have the financial expertise or the objectivity to fulfill your expectations.

A professional trustee can be named as trustee simply because they are specialists in managing trusts. They will usually have a staff that has the expertise and knowledge to handle the administration of the trust including expertise in managing investments. A professional trustee will not be bogged down in family dynamics allowing them to make unbiased decisions on behalf of the trust beneficiaries. A combination of a professional trustee and an individual trustee is sometimes the best decision.  The professional can provide experienced guidance while the individual trustee provides familiarity.  When it comes to making unbiased decisions the governing agreement can allow for those decisions to defer to the professional trustee.

Once you choose your trustee you must decide how much authority to give over the trust assets and distributions to your beneficiaries. It is often a good idea to consider giving your beneficiaries the power to remove and replace the professional trustee with another that meets specific criteria. Lastly, you must consider what standards the trustees should exercise in deciding when to make distributions to a beneficiary and how much.  There are however standards for providing for healthcare, education, maintenance and support for your beneficiaries which will allow your trustee the discretion to determine what is appropriate.

A carefully thought out decision made today when choosing a trustee will assure that your wishes will be carried out long after you are gone.

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About Ira Brower

I have been in the financial service industry for more than 40 years primarily providing wealth management solutions for retired and soon-to-be retired individuals. I am President and Founder of Garden State Trust Company. Our clients depend on us for elder care solutions, such as; trust and estate planning, investment services, and lifestyle management. We also administer to “special needs” or “supplemental needs” trusts. www.gstrustco.com

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