CHOOSING THE RIGHT TRUSTEE

     You may decide to establish a trust for all the usual reasons: to take care of your affairs if you’re incapacitated, to reduce estate taxes, to avoid court supervised probate of your estate, to maintain privacy, or to hold assets for your heirs until they are mature enough to manage the assets themselves.

Setting up a Trust

     When setting up a trust for loved ones, an important, but often difficult, decision is designating someone, the trustee, to manage it. It may require professional assistance to do the job right. The one decision that often causes delays in setting up a trust is deciding on the trustee. There may be serious consequences to naming the wrong trustee. There are two basic forms of trusts: the living trust, which you establish and fund during your lifetime; and the testamentary trust, which comes into being when you die and is funded with assets from your estate.

Choices for Trustee

     The trustee for your living trust is generally you. But after your death, or during your life if you become incapacitated, you need a successor trustee. You may choose an individual (personal) trustee who knows you and your family on a personal basis, a professional trustee, or an institutional trustee such as a trust company, law firm or other institution, like a bank with a trust department.

     Most people prefer to name a relative or close family friend as personal trustee, because he or she would know how you would want your assets to be managed and distributed over a long period of time.

An Important Job

     Every family situation is unique, and no matter what you write in the trust document, the best trustee is one who can make the right decisions in interpreting what you want for your family. Trust assets need to be managed and invested according to strict and conservative standards. Taxes have to be paid and income and distributions must be accounted for. This job may be overwhelming to your adult child, sister or best friend.

Relatives and Friends as Trustees

     There are other disadvantages to naming an individual as trustee. If your first choice as trustee dies, quits, or becomes incapacitated, an alternate successor trustee must take over. Many trusts fail to name a successor trustee or do not describe how to choose one which can lead to a court battle. Because personalities are involved, you want your trustee to be able to deal with all situations. If your trustee is personally close to one of your beneficiaries, he or she may have to make a decision that angers or alienates someone else in the family, family members may take sides, and friendships may be destroyed.

Professional Trustee

     If you name a professional who isn't a family member or friend to act as trustee, friendships or family relationships will not be threatened by a feud among your heirs, but, particularly if your heirs are young, your trust may exist for a number of years. Will this trustee still be there, too?

Co-trustees

     One option is to name co-trustees for the trust: two or more personal trustees, or an institutional trustee and a personal trustee. The personal trustee can offer valuable insights into the personalities of your family members and help build a strong relationship between the institutions and the beneficiaries while the institutional trustee can provide professional management and investment advice.

     Of course, professional services cost money, but unless the personal trustees have financial management expertise, even a personal trustee may need to hire accounting, legal, and other professional help to manage the assets. Institutions typically charge about 1% per year to manage the money in a trust, depending on trust size, and another 1% per year for other costs like distributing income and paying taxes. Those costs may be higher if a personal trustee hires all the professional help.

     Think carefully before you choose trustees, and have your trust documents drafted properly. Most important, get your will, trust and other estate planning documents drafted and signed. Don't use trustee selection as an excuse to procrastinate. You can always name your trustee now and add to or modify your will or trust later.

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