Who is the Trustee of Your Trust and Why Does it Matter?

Filbrandt & Company Reports
Volume 20, Issue9

The Question

The elephant in the room when estate planning attorneys and their clients start talking about trusts is the question of “trustee.” That is, “Who exactly will be the trustee?” Oddly enough, even though there is all manner of discussion around asset protection, tax reduction, and probate avoidance as benefits of trust instruments, the subject of trustee is often not given the attention it deserves. Why is that?

What Are Your Options For A Trustee?

There are two options when naming a trustee: an individual or a third party professional corporate trustee. Which is best will depend on the family’s situation. There are pros and cons of both individual and corporate trustees. Individuals are most frequently named as trustees so let us start there.  

A trustee first and foremost should be someone you trust, so what better choice than an adult child. A great benefit of naming an adult child is the relationship that you have with that child. The shared knowledge you have with a loved one can be invaluable when the time comes for the trustee to make a distribution decision. For example, would mom distribute $25,000 to a nephew age 21 for a new car given the circumstances? This is an example of the type of decision that will need to be made. The emotional pressure of working with other family members regarding “their” money cannot be overstated. When family pressure is combined with potential legal liability should the trustee not act “properly,” makes for a very stressful job. 

Another benefit of naming a family member as a trustee, is that typically the individual does not charge a fee. However, as with most things in life, nothing is free. So, while the trustee’s fee may be zero, what will be the time, and emotional cost of administrating the estate be? In most instances, individual trustees hire legal, tax, and investment specialists to assist them in getting the work done any way. The biggest cost with an individual as trustee is the strain placed on the family at the worst possible time.

What Role Does A Corporate Trustee Play?

Let us now consider the professional, corporate trustee as an alternative to the individual family member. Corporate trustees are staffed with professionals, including attorneys, accountants, and investment specialists. The corporate trustee is in the business of providing client-centric trust services on a full-time basis. Your trust will not be the first one they have viewed or administrated; it is all they do! So, while there is a fee charged by the corporate trustee, the services that would otherwise be largely outsourced by an individual are already included in the service. It is important to know that fees charged by a corporate trustee do not begin until the client either dies or becomes incapacitated and cannot manage their trust assets.  

With a professional corporate trustee named in the documents, family members can focus on everything else that is important at the death or incapacity of a loved one, knowing that critical financial, legal, tax, and investment issues are being attended to. When a corporate trustee is in place, a loved one can distance one’s self from a tough distribution decision to a young nephew. Instead, the nephew and loved family member, continue to enjoy the same close family relationship they have always had, and can blame an unpopular financial decision on the corporate trustee.

 

 

What Is The Best Overall Solution?

The best solution will depend on your situation, but now for some good news, the estate planning process has evolved over the years. A part of this evolving process has been the creation of new roles as “helpers” for one’s estate plan. One of these new roles is the Trust Supervisor or sometimes called the Trust Protector. This role is perfect for a family member.

The trust supervisor has the authority to oversee the trustee and even overrule a corporate trustee. The trust supervisor can if necessary, remove and replace the corporate trustee. But the trust supervisor is not involved in the day to day administration of the trust. The beneficiary still asks the corporate trustee for money when needed. This role allows the trusted loved one to focus on family matters. They are relieved from the stress of daily financial work, yet have input into the decision-making process.  Naming a third-party corporate trustee in tandem with a family member appointed as the trust supervisor can be a great solution for the estate owner, who wants professional management with family involvement.   

If you would like to learn more about Filbrandt Private Trust or Filbrandt & Company’s Comprehensive Financial Planning, click here https://www.filbrandtco.com/financial-planning-services/filbrandt-private-trust

Helping clients achieve their estate planning goals is a top priority for Filbrandt Private Trust.                                        

 

Author: Michael Filbrandt, CLU®, ChFC®

*Acknowledgement to Andrew Welp JD for help in writing this report                                                                

 

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