Selecting the right executor and trustee is a critical decision facing everyone creating an estate plan. Putting some thoughtful consideration into the choice can make all the difference in the success or failure of the plan, as well as how the beneficiaries feel about it.
But often, the choice of trustee isn’t given the weight it deserves; in many cases, it’s given with little regard to someone as an honorary position, or because they’re deemed capable. We generally screen the person we choose to spend our life with far more carefully than the person who will handle the fruits of that life together.
Let’s acknowledge first that no qualifications are required to perform the duties of a trustee, just a willingness to act. No licensing, no certifications, no educational requirements, no qualifications at all are required to serve as a trustee or executor, despite the fact that all of these considerations are taken into account for any other job.
Next, let’s look at the job of a trustee itself, taking into account what trustees have to do, and when they have to do it.
- It’s a BIG job. This is by no means an exhaustive list, but some requirements of a trustee include:
- Inventory Assets
- Value Assets
- Maintain accurate records
- Interpret complex and lengthy legal documents
- Communicate with beneficiaries
- Carry out terms of the document
- Receive requests for distributions and make the decision
- Invest assets
- Report to court as required by law
- Maintain double cash accounting
- Understand effects of forms of property ownership
- File tax returns
- Previous income
- Final year income
- Fiduciary income
- Gift tax
- Estate tax
- Consider both federal and state
- Understand state law
- Probate code
- Trustees powers
- Tax law
- Perform all tasks in an unbiased manner
2. It is EXPENSIVE to provide a la carte. Studies have shown that family members serving for “free” often end up spending more to do it themselves than they would have spent hiring a professional or corporate trustee to handle the process start to finish, or even to help with the process in an “agency” capacity.
3. The costs can be broken down in three ways: time, money and family relationships. Doing it right sometimes means not doing it as fast as some would like. Doing it right sometimes means hiring professional help, which others might resent. And making tough decisions is always going to leave someone feeling badly. Many a family has been divided over tension that arises between the decision-maker family member(s) and other members of the family, especially when you consider this is all happening at a very emotional time.
This brings us to the second point we want to make, which is around timing. It’s important for anyone considering naming a trustee to really think about whether they want to put their children in a position of handling a massive job at what will certainly be one of the saddest and most difficult times of their life, after the loss of a loved one. Professional and corporate trustees, on the other hand, are able to be truly objective during these times, following the decedent’s wishes to the letter without self interest or conflicted emotions.
Finally, let’s break down the differences between each type of trustee: corporate, professional and individual.
- Regulatory Oversight: Chartered to act as a trust company by appropriate regulatory body
- Court Oversight: Held to the highest standards
- Internal Oversight: Clearly defined policies & procedures for consistent, accurate, professional execution
- Permanent and Consistent: Dedicated full time to the task; no vacations, incapacity, or death
- Operate under their professional licenses, generally not chartered as a trust company
- Held to high standards due to the charging of fees and expertise
- May not have a policies and procedures manual
- Generally only a part of the practice
- Subject to vacations, incapacity, or death
- Act as an individual with no charter
- Held to the lowest standards in a legal action, such as the “prudent person” rule
- Generally no defined policies or procedures for consistent, accurate execution
- Generally, part-time at best and can be busy with family and a job
- Vacations, incapacity, or death can be issues
In general, one should lean toward a Corporate or Professional trustee in the following circumstances:
- To avoid burdening family with a time-consuming and complex job at an emotional time
- When family members or spouses don’t get along
- When family has had financial troubles
- When more than one marriage is involved
- When a trust will last a long time
And one should lean toward an individual in the following circumstances:
- When a family business dominates assets and involved insiders are willing
- When assets aren’t significant
- When a close existing network of professionals is already in place
For your clients, making this decision will rarely be easy, but you can use this information to provide guidance about whether they should choose a corporate, professional or individual to carry out their wishes.
Ask each of your clients with a trust who they have named as successor trustee, and why? Really listen to the response to see if it fully considers what must be one, and when. Most clients have probably named family members to this role. If that’s the case, you can still approach the family member named and offer to act as “Agent for the Trustee.” You can leverage Trucendent’s network of corporate trustees for the functional tasks, while still allowing the family member to make discretionary decisions.
To learn more about how Trucendent works with advisors, click here.