How to Choose the Right Trustee

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How to Choose the Right Trustee

Putting assets under trusteeship can be tedious because you’re entrusting your property under the care of third parties. Choosing the right people can mean the difference between a peaceful trust execution and one fraught with challenges. Some things that you need to consider when choosing a trustee are

Family Vs. Professional

The first question is whether you should go with a family member or a professional trust management company.

If you choose a family member or friend, he should be financially astute, and good with money. You want someone who is, at a minimum, familiar with basic concepts of investing, and preferably someone who has assets of their own that they are investing with an investment advisor. Most people like to start with considering friends and family members as trustees. They will be most familiar with you and your family, and they will understand your family’s dynamics.

Besides, family members often do not charge a trustee fee. Cost-conscious clients see this as a plus, but it may not be the best decision. Your family may be better served with a professional trustee or trust company that has expertise with trust administration.

The advantage of a lawyer or an accountant serving is that they have familiarity with your family if you have worked together for a long time. While they will often charge more than a friend or family member, they typically charge less than a trust company or corporate trustee. Trust companies bring structure and oversight to the trust administration, including a trust department that oversees the administration. It is often advantageous to use a trust company when the beneficiaries do not get along, when there is a problem beneficiary, or when dealing with large sums of money.  

To bridge the gap, you can consider co-trustees. Build flexibility into the plan. Professional advisers often charge higher administrative fees and costs than a corporate trustee who must compete on value. Appointing a family’s estate planning attorney as trustee may be a conflict of interest for the attorney.

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Things to Consider While Hiring Trustees

1. Costs

People often believe that individual trustees are cheaper than institutions. This is not true. Individual trustees must hire other professionals, such as attorneys, CPAs, custodians, and investment managers, to help them perform trust-related duties. Additionally, tax costs and state trust laws need to be considered. The residence of a trustee may determine the income taxation of trust and the governing law.

2. Making Decisions

Trustees are often asked to make difficult personal decisions. Individuals may not have the tools or resources to make those decisions objectively. A corporate trustee is impartial in making decisions related to the beneficiaries and will administer the trust by its terms and applicable law. Experienced trust officers make major decisions about discretionary distributions based on their professional understanding of trust provisions, beneficiary circumstances, and intentions. 

Also Read:

When do you need a Debenture Trustee Agreement

Things to Remember When You’re a New Trustee

3. Accounting

Administering a trust involves many responsibilities, including filing tax returns, issuing regular statements and keeping records of trust account activity. Trustees must report income, deductions, gains, and losses of the trust, income that is either accumulated or held for future distribution or distributed to beneficiaries, the income tax liability of the trust, and any employment taxes paid in wages to household employees. Besides, multiple tax schedules may be required.

Family members or other appointed individuals may find this responsibility to be overwhelming and too time-consuming. Any errors, omissions, and late filings can subject the trustee to heavy fines and personal liability if the beneficiaries are adversely affected by incorrect accounting. 

4. Maintaining Assets

Trusts administered by individual trustees are rarely subject to examination, which may leave potential mismanagement of the trust undetected and uncorrected, even if accidental. Trusts managed by corporate trustees are supervised and reviewed by internal bank auditors and examiners from governmental regulatory agencies. 

5. Shouldering Liability

An individual trustee may be personally liable even for good faith, unintentional conduct that falls short of legal standards. Improper accounting, mishandling of assets, conflicts of interest, poor investment decisions, and failing to achieve the most advantageous tax savings are reasons an unhappy beneficiary may seek legal action against the trustee.

A corporate trustee is equipped to avoid such liability and carries insurance as further protection. Besides, corporate trustees have bookkeeping systems to ensure meticulous accounting of receipts and disbursements and to provide accurate reporting to beneficiaries and tax authorities. 

6. Consistency of Service

An individual trustee may not be able to promptly respond to a beneficiary’s needs for a variety of reasons. Trust beneficiaries would have no recourse if the trustee stopped responding. Service consistency becomes an even greater issue if an individual trustee becomes ill or incapacitated. Replacing the trustee could be complicated since there are many levels of incapacity, and proving your trustee is no longer fit for the job could be a difficult and painful experience for your family, as well as for the trustee and his or her family. 

A break in service is not an issue with a corporate trustee since the corporate trus-tee is always available and devotes its full time and attention to the required duties and responsibilities of administering your trust. Unlike an individual trustee, a corporate trustee will not go on vacation, predecease you or otherwise be unable to administer the trust.


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