Trustees: What are They and Who Should you Pick to Serve as Yours

One way think about a trust is to picture it as a small business. The small business is yours; you created it and you own it. But you need someone to manage it. Not unlike with a small business, the one who created it often is the same one who manages it. So it will often be with your Revocable Living Trust. You created it and, while you are alive, you will manage it by naming yourself the trustee. That means you will be able to take money and property out of the trust, put money back in, invest the funds, add and remove beneficiary’s and more.

But who will perform that management if you become incapacitated or die? This is why you support a successor trustee who, in your absence, is charged with managing the trust. You may have heard that the terms of the trust document itself are contractual, and the successor trustee must abide by those terms. This is true. So then you may wonder why it matters at all that you appoint the trustee. After all, don’t they just follow a set of rules you laid out?

To return to our small business analogy, imagine you created your business and managed it for a while but eventually decided to retire from the management role. Instead, you hire a manager.  You of course write a contract with terms that the manager must abide by, but you still want someone who is responsible, knowledgeable, and trustworthy. In other words, the terms of the trust can and should provide the outer limits of what is allowed and disallowed, as do the laws that enforce certain duties on trustees (for more on this, read our article “Duties of Trustees”), but these do not magically create responsible and trustworthy people. It is up to you and your attorney to put your head together to choose people with those qualities.

Below are three common options for a trust maker to choose as their trustees, each with its pros and cons. As you will see, the correct choice will depend on your goals for your estate plan For further reading on what a trustee will actually be charged with, read our article “I’m Taking over as Successor Trustee: Now What?”

OPTION 1: Individual Beneficiary

One common option is for the trust maker to simply name one of his or her beneficiaries—the people who will receive part of the trust property—as their trustee. Often times, this is an adult son or daughter. One of the most obvious benefits of naming an adult child is efficiency, especially if the adult son or daughter is familiar with the family assets and the other beneficiaries. For instance, if the adult child knows where the assets are, has interacted with them in recent years and also has a good relationship with the other beneficiaries and a sense of their needs. Trustees will typically charge fees given the demands of the work, and an adult child may be willing to do them for a more reasonable fee than a professional.

The drawbacks to this choice are that the child's age, lack of experience with asset management, remote place of residence, or demanding job may make them an ineffective trustee. More impactful than all of these, however, may be the beneficiary’s relationship with his or her siblings: will the son or daughter be able to separate personal feelings and exercise good judgment? Also, unique assets that require delicate or experienced management, or a desire by the trust maker that the assets be invested in certain way may require a trustee with technical know-how that a beneficiary does not have. Simply naming a child because they are the oldest without consideration of these factors is something a trust maker should avoid.

OPTION 2: Attorney, CPA, or other professional

Some clients will feel inclined to as the lawyer who drafted their trust to serve as their successor trustee. It may be that the best person to serve as the trustee in the client’s will or trust is the lawyer because he or she knows the terms of the will and trust better, probably, than anyone else. Some states, however, have ethical rules barring attorney’s from taking fees for serving as trustees. For this reason, many lawyers will not want to serve as a trustee for an estate plan they drafted.

Hiring a CPA or a tax-adviser has obvious benefits, namely that they are responsible professionals with financial skills and, usually, good record-keeping practices. Another option is a professional fiduciary. This is a newly emerging profession of men and women whose sole practice is to serve as trustees. We have heard of cases where these individuals perform their work with a high degree of professionalism and effectiveness. Like any service, one should investigate reviews and scrutinize the person they seek to hire.

One drawback with hiring a professional is the fees. Some may work for fees that the trust maker feels are reasonable, and others may charge uncomfortably high prices. Ultimately, the decision will turn on whether the benefit you reap in terms of professionalism and detachment from difficult family dynamics is worth the price. Another drawback is that while disagreement among siblings avoided outright, the fine-tune attention to family needs is sometimes lost by not going with a family member. Then again, a life-long financial advisor may in fact have knowledge of the family and be a trusted individual with close family knowledge.

OPTION 3: A Corporate Trustee

A corporate trustee, often a bank or an independent trust company, may be appointed as personal representative, guardian or conservator of an estate or trustee. A corporate fiduciary will administer your client’s estate or trust with a high standard of care, and will have expertise, having service as a trustee incorporated into their regular course of business. As with the professional described above, they will not have emotional biases that come into play in difficult family situations.

The drawback with these institutions is that as stable, predictable, and fail safe as they are, they are just as inflexible. Much like an ocean-liner ship as opposed to a small speedboat, the trust company or bank can be virtually unsinkable, but hard to steer off-course. If unpredictable situations arise, this lack of flexibility could lead to unhappy beneficiaries who will be forced to go to court to resolve disputes between them and the institution. Aside from being a headache, this process would be incredibly expensive. Further, banks and trust institutions use committees to make many of their decisions which can lead to slow responses to a beneficiary’s questions or concern.

As you can see, there a pros and cons to each. The right trustee is the one that is most effective in fulfilling the trust makers primary purpose for establishing the trust and who preserves the balance between the interests of present and future beneficiaries and the trust maker during his or her life. Take the time to sit down with you attorney to discuss all of these factors and find the right trustee for you.