How to Choose a Trustee for a Living Trust

There’s a certain satisfaction felt when completing your estate planning. It may be the ultimate adulting achievement, second to having a solid retirement plan in place. An estate plan typically includes a living trust, your will, an assignment of assets, durable power of attorney and health care documents. Since your living trust is the centerpiece of an estate plan, understanding its role and choosing a trustee to manage it is incredibly important.

A Living Trust Needs a Trustee

A living trust allows you to organize and manage your assets during your lifetime. If properly funded, after your death the trust will simplify the transfer of assets to beneficiaries while avoiding probate hassles, which ensures a smoother, more private transition.

A key part of creating a living trust is choosing a person or entity – known as a trustee – to hold the assets on the trust’s behalf. Generally, the person who creates the trust (the grantor) also serves as trustee during their lifetime. When the initial trustee is unable to serve (due to resignation, incapacity or death), a trustee steps in to manage and/or distribute trust assets according to the terms of the trust, often to children, grandchildren, friends and charities.

Role of the Trustee

The trustee role requires knowledge, experience, energy, time, organization, judgment and long-term dedication. When accepting this role, the trustee accepts their duties along with the personal liabilities as they are legally responsible for any breach of their duty.

Duties can include:

• Understand the terms of the trust
• Know the powers as trustee
• Manage the investments and property in the trust
• Oversee third-party professionals
• Maintain proper recordkeeping and tax filing
• Make distributions to beneficiaries

Since the trustee is the legal owner of the assets held in the trust, they have a fiduciary responsibility to manage and administer the trust in accordance with its terms.

Asking Family or Friends to be a Trustee

For many, a family member or close friend may be the go-to person for the role of trustee. The biggest reason for naming a family member is simply for familiarity.  When it comes to someone you can really trust, a parent, sibling or child usually tops the list. However, while highlighting the challenges of the role, a Forbes article may have summarized it best, “There’s an adage that the two best days in a boat owner’s life are the day they buy their boat and the day they sell it. A similar notion applies to being a trustee – it’s an honor to be named and then a huge relief when it’s over. That’s because being a trustee is difficult.”

The Wall Street Journal confirms, “candidates should be willing to serve in the role in a continuing capacity and be able to handle what could be complicated financial duties.” If naming a family member or friend is not beneficial to how you want your trust managed, there are other options.

Trusted Advisor

So, who can fill the role of a trustee if it’s not your family or a friend? Oftentimes a trusted advisor is recruited to fill the role of trustee. This can include an attorney, accountant or wealth manager. Typically, these advisors have earned the trust of the family and understand their family dynamics. However, being a subject matter expert in their field doesn’t necessarily make them an experienced and knowledgeable trustee. Plus, they may take the position that managing your trust is a conflict of interest with their existing advisor role and they may decline to serve as trustee.

Paying for Trustee Services

By hiring a corporate trustee or a professional trustee, you may alleviate placing the burden on a family or friend and potentially avoid conflicts between family members. While professional trustees charge fees for services rendered, keep in mind they are impartial neutral parties who can carry out your wishes without the potential for bias. Costs for trustee services can vary widely depending on your circumstances and the pricing policies of the service provider.

Corporate Trustee

A corporate trustee is a bank or trust company that provides professional trustee services and has the knowledge and experience to serve in this role. When considering a corporate trustee, here are some pros and cons:

Pros:

• Continuity: Institutions, unlike people, can endure over long periods of time. Succession is one important consideration when naming a trustee and corporate trustees ensure continuity.
• Regulated and Insured: Corporate trustees are often subject to strict regulations and may carry insurance, providing an additional layer of protection for trust assets.
• Objective: Because they are a business entity, corporate trustees may provide a more impartial and objective approach, reducing emotional involvement.

Cons:

• Fewer Customized Solutions: As a larger organization, they may have streamlined their products with little room to provide custom services.
• Higher Cost: Corporate trustee services can be more expensive due to their professional fees and the potential for additional service charges.
• Less Personal Touch: Some people may prefer a more personal touch in managing their affairs, which may be lacking with a corporate trustee.

Professional Trustee / Professional Fiduciary

Another option for a trustee is hiring a professional trustee, otherwise known as a professional fiduciary. Professional fiduciaries are trained and licensed to make decisions on your behalf. When considering a professional fiduciary as the trustee for your living trust, here are some pros and cons:

Pros:

• Personalized Service: Professional trustees often provide more personalized service, understanding the unique needs and preferences of the individual and their beneficiaries.
• Potentially Lower Costs: In some cases, professional trustees may have lower fees compared to corporate trustees. Services and pricing vary but can be structured around the specific needs of each situation.
• Flexibility: Professional trustees may be more flexible in adapting to change in the individual’s circumstances or adjusting their approach based on specific family dynamics.
• Neutral: They can function as a stabilizing influence within the family.
• Team Dynamic: Most professional fiduciaries rely on a team of advisors to help navigate any complex issues that may arise.

Cons:

• Risk of Personal Bias: There is a potential for personal bias or conflicts of interest if the professional trustee has a personal relationship with the family.
• Single Point of Contact: Relying on an individual professional trustee means having a single point of contact. If they become unavailable or face challenges, it could result in delays or disruptions.

Thoughtful Planning for Successful Trust Management

When putting together your living trust as part of your estate plan, you’re investing so much time and expense laying out what happens to your assets – make sure you’ve chosen the right trustee to carry your plans across the finish line. Whether you choose a family member, a trusted advisor, a corporate trustee or a professional fiduciary, you should spend the time to thoughtfully consider who will manage and administer the assets held in your trust. An Aspiriant wealth manager or estate planning attorney can help you think through the options and ensure that who you name is aligned with your unique personal and long-term financial goals.