One of the hardest decisions to make when finalizing your estate plan is who to name as your trustee when you die or become incapacitated.
For many people, an adult child, other family member or friend becomes the solution since they should know what is best for the trust and its beneficiaries. However, naming a loved one as trustee or successor trustee has the potential to create unexpected problems over time. Even financially sophisticated individuals can find the administrative aspect of serving as trustee time-consuming and challenging. When family members or friends are placed in the position of trustee, they can be influenced by emotions and personal agendas.
Depending on the nature of the trust, the trustee may be required to perform many time-consuming and complex duties. The standard duties typically include investing and managing trust assets, paying bills, maintaining records, making income and principal distributions to beneficiaries per the terms of the trust agreement, and filing trust tax returns and reports.
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However, there are a few instances where these standard duties can become quite intricate. For example, when trust assets are held in different states, when they require expertise such as with an operating business, or require special care such as with art and other collectibles.
The following situations are best served by using a corporate trustee versus a family member or friend.
Family dynamics. A corporate trustee can help maintain family unity by taking sole responsibility for management of the trust. Issues with family members tend to come up after death — a sibling feels left out or feelings get hurt. While many people believe this would never happen to their family, it is quite common for squabbles to occur and resentment to build. The person who takes on the role as trustee can feel burdened by the amount of time and care necessary to handle the role of trustee. While the trustee should be reasonably compensated for this role, many do not take compensation for fear of being scrutinized for compensation paid and/or other decisions made.
Blended families. Under all circumstances, a trustee must balance the needs and desires of conflicting interests, such as the present income of beneficiaries and those who receive what is left over for the next generation or perhaps even the generation after that. For blended families, this conflict can become especially complicated. A surviving spouse named as successor trustee may deliberately or unintentionally drain the trust principal intended for the children or stepchildren. Similarly, an adult child named as the trustee for a stepparent may limit access to trust assets to benefit successor beneficiaries.
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Complex situations. Expert management is necessary for larger trusts. For instance, complex estates may have unique legal and tax needs, as well as require sophisticated asset management that may be beyond the scope of most individual trustees. Even though an individual trustee can bring in appropriate experts to assist, it is likely that the individual trustee still lacks the skills necessary to manage the various needs of the trust.
Asset protection. If the beneficiary or a related party is serving as trustee of the trust, divorcing spouses and creditors may have an easy argument that the assets of the trust are at the disposal of the beneficiary. If a corporate trustee has absolute discretion whether to release funds from a trust, litigants seeking to access trust assets will have a difficult time forcing a corporate trustee to make disbursements.
Continuity. Often, the role of trustee could come decades in the future and require the trustee to serve many years beyond the original appointment. It is likely that the trustee may not be available to serve a full term, leaving a void that will need to be filled.
The main advantages of naming a corporate trustee are expertise, experience, resources and objectivity. Possible disadvantages are cost and insensitivity to or lack of familiarity with family circumstances.
An often-overlooked advantage of naming a corporate trustee is the organization’s fiduciary responsibility — to look out for the interests of all beneficiaries equally. While the corporate trustee will always be concerned about how those decisions will affect family relationships, the corporate trustee’s primary concern will be carrying out the grantor’s intent, as expressed in the trust document.
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Corporate trustees take their fiduciary obligation very seriously; even the slightest breach may open the possibility of litigation.
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5 Reasons to Use a ‘Corporate’ Trustee originally appeared on usnews.com
