If your estate plan utilizes trusts to manage the distribution of property and other assets to your heirs, then you have a very important decision to make: Who will be your trustee?
You have two main options when naming a trustee: You can designate an individual — such as a family member, friend or business associate — or a corporate trustee, which is usually a bank or trust company. So how do you decide whether to designate an individual or corporate trustee?
Many people designate an individual trustee because they feel that a friend, family member or business associate who knows them well will be best suited to ensure that the terms of their trust are followed faithfully and accurately. However, the job of trustee can be difficult, complex and time-consuming — especially for someone with little if any knowledge or understanding of trusts, investing and estate planning.
Among other duties, a trustee is responsible for managing the assets in the trust and making distributions to heirs and beneficiaries according to your wishes. Your trustee must be capable of putting aside personal feelings and following your directions precisely, even if he or she disagrees with them. Sometimes, this can be difficult for family members and close friends.
Factors to Consider
Here are a few factors you should consider in deciding whether to name an individual or corporate trustee:
- The size and complexity of the trust — The larger and more complex the trust, the more it probably makes sense to designate a corporate trustee. This is especially true if you have a legacy trust that will endure across multiple generations.
Conversely, it often makes sense to name an individual trustee if there is less than $50,000 in the trust because the fees charged by a corporate trustee may not be cost-justifiable for a trust of this size.
- The capabilities of friends, family members and business associates — As noted above, being a trustee typically requires some knowledge of trusts, estate planning and investing. A trustee may be required to perform routine administrative duties, make investment diversification decisions, handle estate tax filings and distribute assets to heirs and beneficiaries.
If you don’t have a friend, family member or business associate who can do this, you’ll probably need to designate a corporate trustee.
- The relationships between beneficiaries — If the relationships and dynamics between family members and heirs are complicated or strained, this can make the job of trustee exponentially more difficult. This is sometimes the case in blended families, for example, where internal bickering and even litigation are sometimes present among heirs.
In this type of scenario, a corporate trustee may be better equipped to handle family discord and help ensure that the terms of the trust are followed and your wishes are ultimately fulfilled.
Here are a few other potential benefits of naming a corporate trustee:
- Corporate trustees are regulated at both the state and federal levels.
- It’s easier for corporate trustees to remain objective and thus follow your instructions accurately.
- A corporate trustee may be able to provide financial, investment, tax and other types of advice, as well as refer your beneficiaries to attorneys, CPAs and other professionals who can be helpful in estate settlement.
A Hybrid Solution
In some situations, you may be able to designate co-trustees by naming both an individual and a corporate trustee who will work together in settling your estate. Duties and responsibilities can be divided between co-trustees in several different ways.
For example, the corporate trustee could assume the role of directed trustee and handle the day-to-day trust administration duties. Meanwhile, the individual trustee could handle investment management (or hire an investment advisor to do so) and other less-complicated and more personal aspects of estate settlement.
If you have more questions about naming a trustee, please give us a call. We can discuss your situation with you in more detail and help you make the right choice.