Four Key Factors to Consider When Selecting a Trustee: Finding the Right Fit for Your Legacy Plan

Kelly Johnston, CTFA and CWS

First Republic Trust Company

May 18, 2016

Factors when selecting a trustee

Trusts, commonly used for wealth distribution, are only as effective as the managing trustee. This makes the selection of the trustee one of the most important decisions you can make when developing a legacy plan.  Making the right choice can ensure your plan is carried out in accordance with your wishes and in a way that suits your family. Generally there are three choices available: an individual family member or friend, a private professional fiduciary, or a corporate trustee. There are at least four key factors to consider when making your selection.

Select for Depth and Breadth of Expertise

Sometimes families delegate the responsibility of trustee to a friend or relative who has expertise in accounting, investments, or has a legal background. While an individual may maintain deep expertise in his or her field, the responsibilities of a trustee require a much wider breadth of knowledge.

The nuances of trust administration are many. A trustee needs to interpret legal documents, understand fiduciary accounting rules, demonstrate prudence in making investment decisions, and exercise discretion in making distributions to beneficiaries. Trust laws and income tax considerations vary by state, which can complicate matters further. Even the most experienced individual will likely need to hire several professional advisors to carry out the required responsibilities.

Opt for Objectivity

Knowledge of the family history and dynamics can be helpful when it comes to managing a trust. Still, it is virtually impossible for a family member to remove emotion from the decision-making process, even for the most methodical of relatives or friends.

Grief often amplifies emotions and since a trustee is typically stepping in at the death of a trustor, this can be particularly burdensome for a grieving family member trustee. Even families with strong relationships can find themselves feuding over cherished keepsakes and family heirlooms. Responsibilities such as dividing a trustor’s assets among family members are extremely difficult and are much more complicated for an emotionally invested trustee. Sensitive decisions like these can create unintended consequences and can strain family relationships.

A private professional fiduciary or a corporate trustee is neutral, removing the emotion from tough decisions while giving the family beneficiaries the confidence that they are being treated fairly and without bias. When the family is comfortable that the trustee is acting impartially, they have the ability to focus their energies on supporting one another during their time of grief.

Consider Continuity and Longevity

The time commitment associated with serving as trustee can be significant, particularly in addition to that individual’s own personal and professional obligations. A planned vacation, unexpected illness, or an accident can disrupt the administration of the trust. The lack of continuity can have serious consequences, such as impeding the trustee’s ability to make important, time sensitive decisions about taxes and investments, or the family’s ability to get information. A bottleneck can easily develop when the key to the gate is held by just one individual, whether that person is a committed family member or an individual private professional fiduciary.

A corporate trustee has a dedicated team of trust professionals involved in managing a family trust. If a trust officer is on vacation or is otherwise unable to serve, the rest of the team is still present and continues to carry out the responsibilities of the trustee—without disruption to the beneficiaries. Corporate trustees have many internal resources available to maintain momentum and provide continuity for the life of the trust, no matter what outside complications may arise.

Compare Overall Costs

Families often turn to a personal connection to serve as trustee because they assume other options will be cost prohibitive. While individual trustees do not always charge a fee, they need to hire experts to properly administer the trust. Individual trustees must rely much more heavily on attorneys, tax consultants, and financial advisors, who often charge by the hour. Those fees can add up quickly.

One of the advantages of choosing a corporate trustee is that they typically offer a full suite of in-house experts in trust administration, tax, investments, real estate and unique assets, as well as financial planning. Collectively, they can take advantage of these internal resources to administer the trust in the most tax efficient and cost effective manner.

As you make your trustee selection, consider both the financial and emotional impacts of that choice. Make breadth and depth experience, objectivity, and access to resources priorities. When you consider the cost, make sure you contemplate the need for additional advisors. After taking these critical factors into consideration and making your selection, you can have peace of mind knowing that your beneficiaries will be in capable hands.

The strategies mentioned in this article will often have tax and legal consequences; therefore, it is important to bear in mind that First Republic does not provide tax or legal advice. This information is provided to you “AS IS”, does not constitute legal advice, is governed by our Terms and Conditions of Use, and we are not acting as your attorney. We make no claims, promises or guarantees about the accuracy, completeness, or adequacy of the information contained here. Clients’ tax and legal affairs are their own responsibility – Clients should consult their own attorneys or other tax advisors in order to understand the tax and legal consequences of any strategies mentioned in this article.

The information and opinions in this article are presented as-is and may not be suitable for all readers.  Please obtain appropriate advice for your particular situation.  

© First Republic Trust Company 2016