A proper estate plan is critical to ensuring that the success you’ve worked so hard to build over your lifetime, is passed on in a way that benefits your family and supports the values you want to leave behind when you’re gone.
Planning for the transfer of wealth to younger generations is a challenging process for successful families. Many want to leave their children enough so they can do anything, but not so much that they can do nothing. What’s “enough” or “too much” is unique to each family.
Many families of wealth choose to leave some, or all, of their wealth to future generations in trusts. Trusts can be created in many ways and can specify exactly how and when the assets are to be passed to the beneficiaries. If you go with a trust, you’ll need to select a trustee. A trustee is a person, board, or corporation that you designate with the task of overseeing the administration of your trust after you pass away. They’re tasked with making decisions about distributions to your beneficiaries and ensuring they meet the directions defined in your trust. It can be a challenging job, so it is crucial to select the right trustee to carry out your wishes.
Opting for a family member or friend to serve as your trustee is common, because the relationship is personal, and they may be well-suited to understanding the needs of the beneficiaries. However, most individual trustees don’t have the experience, time, or financial or business background to manage the tax and administrative duties associated with a modern trust. It can also change the personal relationship between the individual trustee and the beneficiary.
If you go with a corporate trustee, like a bank, it can help you sidestep pitfalls often associated with an individual trustee. That’s because corporate trustees have expertise that individual trustees often don’t possess. A corporate trustee must also comply with internal audits and is scrutinized by both federal and state regulatory agencies. That ensures protection for trust beneficiaries.
For some, using an individual trustee and a corporate trustee may be a good solution. Acting in concert, the individual trustee can bring the knowledge of the personal relationships, and the corporate trustee can apply the safeguards needed for making sound investment and administrative decisions.
Regardless of the direction you take, here are three thoughts which you should consider when evaluating which trustee is right for you and your family:
- Trustees must be diplomatic. A trustee must work with beneficiaries of vastly different character and levels of sophistication including children, grandchildren, friends, and other beneficiaries who all have different backgrounds, expectations, and goals. An individual trustee must weigh the needs of the individual trust beneficiaries versus the terms of the trust. It is critical for the trustee to recognize the differences between beneficiaries and administer the trust in a way that both supports their needs and satisfies the intent of the trust.
- Siblings will always fight. One sibling may have a lifelong belief that “Mom always liked you best.” It’s important to explain to your trustee and your beneficiaries what will occur when you’re gone before you’re actually gone. This can make a huge difference in preserving family harmony. It may seem uncomfortable, but it’s a gift to your family that’s far more valuable than money.
- What you can expect. Working with a beneficiary who depends substantially on trust distributions for support can be a challenge for any trustee. A trustee has to be prepared to be the “bad guy” when beneficiary behavior runs up against prudent trust administration. Someone has to be the one to say no.
As you think about what type of trustee to use, you still need to work with an experienced estate planning attorney, who will ensure that your trust is set up properly.
Reference: BizWest (November 27, 2017) “To Trustee or not to Trustee”