When you create a trust as part of your estate plan, one of the most important decisions is who will serve as trustee. This role is responsible for managing and distributing the assets in your trust according to your wishes. It’s crucial to choose someone who will handle your estate reasonably and efficiently to avoid family discord. This blog post will discuss the factors you should consider when selecting an individual, company, or bank as trustee for your estate.
Questions For Potential Trustees
Your trustee is a trusted person or entity charged with managing, investing, and distributing the money and property from your trust to you during your lifetime and to your chosen beneficiaries after your death. Because a trustee’s work may be time-consuming, complicated, and involve risk liability, many people who create a trust consider naming a professional fiduciary as their trustee.
When selecting a trustee or successor trustee for the management of your estate, it is essential to ensure you make an informed decision. Consider all options carefully and choose someone who can responsibly manage assets according to your wishes.
Consider these Questions:
- How do you charge? You want to know how much the service will cost to ensure that there will be money left over to give to your beneficiaries. Ask about if there are additional fees and ensure that a bank’s fees are reasonable before signing on.
- Do you keep records of the transactions you conduct on my behalf? Who has access to these records? An individual who manages another person’s finances is a fiduciary, meaning they owe a duty to that person to act in their best interest according to the law.
- How often do you communicate with the beneficiaries and my family members? It is vital that the lines of communication remain open. This can help avoid potential conflicts after you have passed away.
- Do you require any particular language in the estate planning documents? Your estate planning attorney will want to ensure prepared documents function properly when the trustee needs to step in.
- What has been your best experience with estate administration? When you meet with a potential trustee, this question can help you understand what they value and how they do their job.
- What has been your worst experience administering an estate or trust? Take this opportunity to learn from others’ mistakes.
- Do you charge for your services? Some organizations may charge while others may not. It is essential to know ahead of time, so money is available to cover these expenses.
- How will we contact you? Because you do not know when you will need their assistance, it is crucial to have an easy way for contact a potential trustee in an emergency situation.
Bank as Trustee or Corporate Trustee?
Hiring a bank trust department or a corporate entity as your trustee does not guarantee they have the resources needed to administer your trust properly. Trust services vary widely in their abilities to keep accurate records and deliver the future results you want!
For the benefit of your future beneficiaries, be proactive and ask plenty of questions. Trust administration of significant assets is a full-time job. Even if your trust’s assets are modest, asset management matters to your heirs!
Before appointing a trustee of a trust, ensure that professional trustees understand their fiduciary responsibility. Consider the below areas of duties when talking with corporate or bank trustees:
Bookkeeping
The professional you hire should have a sound system for trust accounting. Trust funds must be held in a separate account and not commingled with their business’s funds. They need a system in place to keep individual records of your trust assets and account statements for:
- Income and principal
- Disbursements from the account
- Receipts
- Capital transactions, etc
The professional trustee has a duty to provide information to the trust’s beneficiaries, and current income or principal beneficiaries are entitled to a detailed accounting. The beneficiaries need a complete understanding of the trust’s transactions, accounts, and property. If possible, the trustee must follow the trust’s dictates while avoiding conflicts with your beneficiaries.
Your trustee must only use your trust’s funds for your matters. The professional must not use one client’s funds for another client’s benefit or cover expenses for another client.
Additional Recordkeeping
A trustee must be able to handle many other recordkeeping responsibilities as your trustee, including preparing tax returns (even if they are hiring someone else to do this), managing trust-related correspondence, and keeping records of steps performed to ensure that discretionary distributions from the trust are proper.
The trustee should also have an in-depth knowledge of how to make financial decisions, including investment strategies, personal finance, and tax consequences.
Adequate Staff
A professional trustee may administer multiple trusts at the same time. As a result, it is essential for their business to have enough trained and experienced staff members who are knowledgeable about trust administration to perform the necessary tasks.
Is the Bank or Trust Company Accessible?
Does the trustee have enough time in their schedule to handle the responsibilities required by the trust? A trustee needs to be responsive and accessible, especially when the terms of the trust provide for thoughtfully evaluated distributions, such as for a beneficiary’s health, education, maintenance, and support. If you’re working with a large bank as trustee, they may not have as much time allotted to work with your beneficiary.
The beneficiary and trustee will need to communicate if distributions are regular. For example, suppose a trust beneficiary requests a distribution to help pay for a medical procedure. In that case, the trustee should be able to respond in a timely way without requiring multiple phone messages or repeated requests.
When Accessibility Matters
Administering a trust can be time-consuming, especially if a trust has a complex distribution scheme. For example, in the case of a special needs trust, the trustee will need to give significant attention and knowledge of the beneficiary’s needs. They will need to ensure correct distributions so that the beneficiary retains their government benefits.
If a trust cares for a beneficiary with an addiction, their beneficiary distributions support their recovery. The trustee must become familiar with the situation and be willing to spend the time needed to administer the trust in the beneficiary’s best interests.
If trust administration is only a tiny part of a trustee’s business, they may not have the time to handle the required tasks. Critical communications with beneficiaries and other relevant parties may get lost in the shuffle. A large trust company or bank as trustee may not give the personal attention your beneficiaries deserve.
Talking with your estate planning attorney can help you make the best choices about who will handle the responsibilities of your trust.
Does the Trustee Have a Succession Plan?
If the trust continues for many years, hiring someone who will retire soon may not be prudent, especially if your trust beneficiaries are minors. Regardless of the trustee’s age, it is essential to ask if the trustee has a succession plan. No one can work forever.
Although the trust’s terms should name a successor trustee, if your trustee has the power to designate a successor, you should ask who will take over if something happens to them.
Is the Trustee Willing to Work with Other Advocates for Your Beneficiaries?
The trustee must cooperate and communicate with other caregivers if a beneficiary is a minor or has special needs. In the case of a special needs trust, for example, the beneficiary may be incapable of safeguarding their own interests.
In such a situation, a caregiver or advocate must effectively communicate the beneficiary’s needs to the trustee. The trustee must have the time and willingness to maintain regular contact with those advocates.
Once you choose a professional trustee you feel comfortable with, notify them that they have been named as trustee, even if they will not have to act until you are no longer able or have passed away. Your decision to name a particular professional as a trustee does not mean they must accept that position.
Suppose your initial choice declines after you notify them. In that case, you can appoint another trustee you have vetted rather than forcing your beneficiaries to go to court to resolve the matter, which may be expensive and time-consuming.
Hiring an Individual Trustee (Family Member, Friend, etc.)
Individual trustees can be a trusted family member or friend. Often, their services will cost less than an institutional trustee will charge and will not include additional fees. However, your final decision should carefully consider how well they can serve in the manner necessary for your trust.
If your trustee needs to understand tax laws and investment management, but does not, you can also consider naming co-trustees.
For some people, choosing trusted decision-makers is easy. For others, it may be more difficult due to tense family business issues, inherent conflict, geography, or the lack of living family members.
Most advisors and estate planning attorneys counsel clients to choose family members or close friends. If you decide to ask a sole trustee, consider asking similar questions that you would ask a bank or trust company.
Summing It Up
Appointing the wrong person to the crucial role of trustee can quickly derail your estate planning process. Taking the necessary next steps to protect yourself and those you care about is vital. Discuss your options with an experienced estate planning attorney to ensure that you have trusted decision-makers in place to help you when needed.
Whether you choose an individual, corporation, or bank as trustee, with careful planning, your trust instrument can help manage your estate plan to benefit you and your beneficiaries far into the future.
Our Experienced Estate Planning Attorneys Can Help
At Vail Gardner Law, we understand how important it is to choose the right trustee. Our experienced estate planning attorneys are available to answer all of your questions and help you create the best trust document possible to facilitate a smooth transition of your estate.
Get in touch if you need help choosing a trustee or would like us to meet with your chosen trustee to explain their role in your trust. We would love to be a part of helping you plan for the future of your family!