by Kathy Sablone, JD, AEP®, Co-Chief Planning Officer
by As you plan for your estate, one of the most important decisions will be your choice of trustee. That choice is also often one of the most challenging. Your trustee holds legal title to the assets in your trust and has a responsibility to act in the best interests of the trust beneficiaries. He or she must follow the instructions in the trust document as well as the rules laid out by state and federal law. Unlike a personal representative or executor who may serve for 1-2 years, a trustee may serve for a much longer-term.
If you have a revocable trust, you will probably serve as trustee during your life, but you will also need to name a successor to take over after you die or become incapacitated. Many people wonder if they should choose a family member or close friend or whether they will be better off with a professional trustee. Each of these options has its advantages and disadvantages.
A family member or friend may be more likely to understand your wishes and the family dynamics. In addition, a family member may charge little or no fee. At the same time, he or she may lack the skills to carry out this role. If there are disagreements between the trustee and the beneficiaries, family relationships can be strained. If the trustee is also a beneficiary, then the trust must be carefully drafted to avoid any adverse income or estate tax consequences. Finally, if the trust is intended to last for generations, he or she will need a successor, or successors, to take over in the event of death or disability.
A corporate or professional trustee will have the expertise to manage the trust and handle the administrative details. In addition, they can deal objectively and unemotionally with the beneficiaries. A corporate trustee will not die, which provides continuity. One drawback is that a corporate trustee may charge a fee while a family member may not. Furthermore, they may not know your beneficiaries very well and may act more conservatively than you would have intended. However, this may be less of a factor if you choose a trustee with whom you have a relationship so that they understand your wishes and can carry them out.
Your decision will depend on a variety of factors. In some cases, especially if the trust is large, grantors will name a family member and a corporate trustee as co-trustees in order to get the best of both worlds. It is also important to consider the goals of the trust along with its size and expected duration and type of assets it will hold. For example, a complicated trust that is expected to last for generations may mean that a professional trustee is more suitable. You should also consider whether you have an individual that you can trust and how they would negotiate the family dynamics.
As you make this decision, you should also pay attention to some of the provisions in your trust that relate to your trustees. You may think that some of the sections in the back of the trust are unimportant boilerplate, but they can have significant consequences. You should review who has the power to remove trustees and appoint successors after your death. If you have multiple trustees, then the trust should specify how decisions are made when trustees disagree. If you do choose a family member or friend, the trust should give that individual the authority to hire professionals to assist them.
Your choice of trustee is a personal decision, and there is no one right answer for everyone. For this reason, it is important for you to take the time to make this decision. By making your wishes regarding your successor clear, you can ensure that there is a smooth transition for your beneficiaries.
If you have any questions, please contact our Estate and Financial Planning Group:
Kathy Sablone, JD, AEP®: [email protected] or 617-956-9712
Alisa Kim O’Neil, JD, CTFA, AEP®, CDFA®: [email protected] or 617-275-0313
Important: This alert does not contain any legal or tax advice. You should always consult with your attorney, accountant or other professional advisors before changing or implementing any tax, investment or estate planning strategy.
IRS Circular 230 Disclosure:
Pursuant to IRS Regulations, we inform you that any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax related penalties or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.
Professional Designation Minimum Requirements Disclosures:
AEP® – Accredited Estate Planner®. Minimum requirements for the AEP® designation include active practice for a minimum of five years within the following disciplines: accounting; insurance and financial planning; law; philanthropy; and trust services with at least one-third of the individual’s time devoted to estate planning. Additionally, one or more of the following professional credentials: JD, CPA, CLU®, CFP®, CPWA®, CFA, CAP®, CSPG, CTFA, MSFS and MST is required, along with three professional references and current membership in an affiliated local estate planning council.
CDFA® – Certified Divorce Financial Analyst®. Minimum requirements for the CDFA® designation include a bachelor’s degree with three years of approved on-the job experience along with successful completion of the CDFA® examination consisting of 150 multiple choice questions. 30 hours of continuing education is required every two years.
CTFA – Certified Trust and Fiduciary Advisor. Minimum requirements for the CTFA designation include 5 years minimum experience in wealth management, a bachelor’s degree and passing the CTFA examination. 45 continuing education credits are required every three years.