Choosing the right trustee to manage your assets is one of the most important steps in estate planning.
What is a trustee?
A trustee takes legal ownership of trust assets, manages the trust, and is responsible for carrying out the purposes of the trust.
Beneficiaries, people or entities named to receive trust assets, will depend on the trustee for legal expertise, financial savviness, prudence, objectivity, and empathy.
When selecting a trustee, it’s important to consider the different types of trusts and associated responsibilities.
To learn more about trusts and wills, see What is a Trust? and What is the Difference Between a Will and a Trust?
How do you choose a trustee?
Most people pick a friend, family member, attorney, or corporate trustee to oversee their assets.
Before choosing a trustee, consider these four factors:
- Time – Trustees must be prepared to devote enough time to properly manage the trust. Serving as trustee involves a significant amount of work, such as:
- Filing income and estate tax returns
- Securing and selling real estate
- Maintaining property
- Hosting estate sales
- Conducting appraisals for personal items, like jewelry and artwork
- Notifying creditors of outstanding debts
- Keeping records of trust account activity
- Communicating with beneficiaries
Depending on the type of assets, trustees may have to spend substantial time processing requests, mediating, and making final decisions about distributions. With career, family, and community responsibilities, it can be difficult for individual trustees to quickly respond to time-sensitive, beneficiary requests.
- Responsibility – One responsibility of the trustee is to oversee distributions to beneficiaries. Some trusts may provide specific instructions about the nature of permissible distributions, but often, trustees will have to decide which distributions are appropriate. Trustees who have personal relationships with beneficiaries may struggle to make objective decisions. Complicated family dynamics, especially paired with grief, can make this responsibility more difficult. For example, a trustee may be required to withhold funds from a financially irresponsible relative but may fear that the decision will hurt their relationship. Corporate trustees, though they do not have as much knowledge of the relationships between family members, have the ability to make impartial decisions. They operate under the fiduciary duty, which means they act in the best interest of beneficiaries. In addition, institutional trustees provide continuity; trust officers will always be available to administer the trust, whereas individual trustees could become incapacitated or die.
- Expertise – Individual trustees, without expertise, can easily make mistakes or mismanage trust assets. Auditors do not review the decisions of individual trustees. Serious errors could remain undetected for years, resulting in heavy fines or lawsuits. Internal auditors and regulatory government agencies check that corporate trustees properly manage trust assets. They review account management processes, compliance procedures, and fulfillment of the fiduciary duty. Typically, institutional trustees include a team of trusted professionals in accounting, law, and compliance and carry liability insurance.
- Cost – Typically, corporate trustees charge fees equal to a percentage of the value of the trust assets. Trust companies or corporate trustees provide all services within one bundled fee. Though individual trustees, like family members or friends, may not require a fee to manage the trust, they may hire professionals to assist them with their decisions and responsibilities. Depending on the types of assets in the trust, individual trustees may need to consult hired attorneys, accountants, or portfolio managers, adding to the overall cost.
Can I have two trustees?
It is possible to choose a corporate trustee and an individual trustee to administer the trust.
By naming co-trustees, the trust can have both professional management and decision-making input from a family member or friend.
Co-trustees allow family dynamics to play a role in distribution decisions but give tough administration responsibilities to the institutional trustee.
Trust services provided by Members Trust Company, a federal thrift regulated by the Office of the Comptroller of the Currency. Trust and Investment products are not NCUA/NCUSIF/FDIC insured. May lose value including the possible loss of principal. No financial institution guarantee. Not a deposit of any financial institution. This is for informational purposes only and is not intended to provide legal or tax advice regarding your situation. For legal or tax advice, please consult your attorney and/or accountant.