People spend a significant amount of time building their wealth and carefully creating trusts and mapping out an estate plan to protect and preserve their assets for future generations. Yet, when it comes time to naming a trustee to carry out their wishes under the terms of a trust, many people stumble. Making the right decision requires an understanding of all the fiduciary duties for which your trustee is responsible.
A trustee is a person, business or institution you select to manage, protect, preserve and administer the assets you place in trust for your named beneficiaries. Some of the responsibilities that come with this position include investing trust assets, managing tax compliance and efficiency, recordkeeping and reporting, and evaluating beneficiaries’ needs and requests for distributions, all while maintaining a fiduciary duty to carry out the terms of the trust, as specified by the grantor. While trustees need not be experts in all these tasks, they must be prepared to commit a significant amount of time and resources to performing them on a regular basis and using their own discretion to make decisions and always act in best interests of the trust and its beneficiaries.
One way grantors can help support trustees from the onset is to provide them with a letter of wishes, spelling out all and their hopes and goals for their beneficiaries and the rules and limitations they want their trustees to follow when carrying out the terms of the trust. Although these separate documents are not legally binding, then can serve an important purpose to help guide trustees make decisions, especially when beneficiaries reach the age at which they become the trustees of their own trust instruments.
Usually, people’s first instinct is to select a trustee from within their own families or network of friends. After all, who knows you better than your spouse, a sibling or best friend who has known you most of your life and shares your values? Who do your beneficiaries know and trust? Who are you confident will be able to step into your shoes and make the decisions you would make if you were no longer able to do so? Because family members and friends are the most common answers to these questions, they are the most frequently relied on sources to serve as trustees. Under most circumstances, these arrangements work best for most people. However, not everyone has the same family dynamics.
Before naming a family member or friend as trustee, recognize that what you consider fair and equitable may not be regarded the same way among your heirs and may lead to family discord. Ask yourself if the selection of one family member over another will exacerbate already existing tension among your beneficiaries? Would there be more or less harmony if you name all your children as equal co-trustees? Can whomever you choose be impartial, separating his/her personal interest from those of the trust and its beneficiaries?
If you do name a trustee who knows you intimately, but you are wary of creating any perceptions of bias, competition or resentment among family members, you may name a close friend or trusted advisor as your primary or co-trustee. Either way, you should always assign a successor trustee to take the reins, should your original selection pass away or be unable to continue performing his/her duties.
It is likely that your attorney and accountant understand your unique needs and goals and how they fit within your family dynamics. It is also probable they have some level of experience serving as trustees, managing trust assets and carrying out their clients’ estate plans.
While naming a trusted advisor to serve as a trustee may help reduce perceptions of bias and risks of conflict among family members, it is important to recognize that professional expertise comes at the cost of higher administration fees than those that would be charged by a friend or family member. Moreover, when your trustee is one of your trusted advisors, there may be a conflict of interest when he or she is also retained by members of the family for their personal needs.
There are a wide variety of corporate trustees that operate for the sole purpose of managing and executing family trusts. These banks and financial institutions employ licensed professionals and have the systems, processes and procedures in place to meet their legal responsibilities to manage trust assets, file tax returns, distribute statements to beneficiaries and oversee other trust duties. However, because the primary focus of these institutions is on trust investment and administrations, they will follow strict guidelines and be far more rigid and restrictive than a family member, friend or trusted advisor when making decisions that affect beneficiaries, each of whom may have different needs and goals. This level of expertise and commitment also results in fees that can run as high as 2 percent of trust assets.
Choosing the right trustee to carry out your wishes can be challenging. However, your trusted advisors can help to ensure you consider the full realm of options available to you and plan for all the what-if scenarios that can occur based on your ultimate decision. Whether you select one individual or a team of trustees, it is important you are intentional in documenting your wishes and spending time with those people to help ensure they understand and respect your personal values and beliefs and they are prepared to preserve your legacy and pass it on to future generations as you intend.
About the Author: Eric P. Zeitlin is CEO and managing director of Provenance Wealth Advisors (PWA), an Independent Registered Investment Adviser affiliated with Berkowitz Pollack Brant Advisors + CPAs, and a registered representative with Raymond James Financial Services. For more information, call (954) 712-8888 or email info@provwealth.com.
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Eric P. Zeitlin is a registered representative of and offers securities through Raymond James Financial Services, Inc., Member FINRA/SIPC. Raymond James is not affiliated with and does not endorse the opinions or services of Berkowitz Pollack Brant Advisors + CPAs. PWA is not a registered broker/dealer and is independent of Raymond James Financial Services. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc., and Provenance Wealth Advisors.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of the advisors of PWA and not necessarily those of Raymond James. The information contained in this report does not purport to be a complete description of the developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Investments mentioned may not be suitable for all investors. You should discuss any tax or legal matters with the appropriate professional. Prior to making an investment decision, please consult with your financial advisor about your individual situation.
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Posted April 28, 2022