How to Solve the Trusteeship Puzzle
More and more affluent families are turning to trust-based solutions for family wealth and inheritance management. However, a trust plan is only as good as its trustee. Have you been asked to serve as trustee, perhaps for a parent’s trust? Do you plan to ask your child to be your trustee? Although such a course of action may be a natural impulse, it may not be the best approach.
A family member has the advantage of personal understanding of the trust beneficiaries, and that is no small thing. Unfortunately, family members usually lack experience and ability in several other crucial areas.
The case for using a corporate fiduciary
Here are some of the important, practical considerations for choosing the best fiduciary to supervise the implementation of an estate plan, beginning with this job description:
- Correspond with disgruntled beneficiaries;
- Manage family drama;
- Provide accounting to disgruntled beneficiaries;
- Invest assets (don’t lose money or you will hear from disgruntled beneficiaries); and
- Receive phone calls from disgruntled beneficiaries inquiring when they will receive their inheritance (but remember, it’s not about the money).
Not every estate settlement is so contentious, but a wise man once suggested that nothing tests the bonds of siblings like sharing an inheritance.
Resist the first impulse
Very often someone’s first thought in selecting an executor or trustee is that either a spouse or adult child can handle the job. It’s vital to probe the family dynamics before moving ahead with such a decision. Sample questions might include:
- Do your children communicate regularly?
- How would one child react to his or her sibling receiving compensation for managing and distributing assets?
- Is any child likely to demand an inheritance immediately?
Most people need to be brought up to speed on what fiduciary duties are, how much time and expertise they may require, and the value of having an impartial third party involved in decisions that may not always be popular.
Individual fiduciaries
The benefit of naming an individual to serve as trustee is chiefly familiarity with the family values, family members, and family dynamics. There is a perception that an individual will be less costly or may even waive fees for serving as trustee. Unfortunately, most individuals will need to hire experienced professionals to help in the discharge of their fiduciary duties, so the total cost of administration may actually be higher with an individual in charge.
Corporate fiduciaries
Corporate fiduciaries (such as us) bring experience, expertise, professionalism, and objectivity to the jobs of trusteeship and estate settlement. Continuity of service is another advantage. Although there may be employee turnover, and the banking industry has experienced a series of acquisitions and mergers, a trust division doesn’t take vacations, get sick, or move out of state. Corporate fiduciaries are regulated and bonded.
Sample questions that should be asked when interviewing a prospective trustee include:
- What services will be performed?
- What services will not be performed?
- Are distribution requests handled by an individual, or by a committee?
- How long does it usually take to decide on a request for a discretionary distribution?
- At what asset level would the trustee terminate the trust and distribute the assets outright?
- Will any specific language need to be included in the trust document?
- Has the organization performed capably in both bull and bear markets?
- What fees will be charged? Do the fees include investment management costs, or will they be an additional expense?
- Will recordkeeping be provided at no additional cost?
- If conflicts develop between the beneficiaries, how will they be resolved? Will all the beneficiaries respect the decisions of the trustee?
For those who can’t make up their minds, it may be possible to have multiple fiduciaries—a sort of “best of both worlds.” However, someone needs to be in charge, and that should be made plain in the estate plan. Don’t overlook the importance of planning for the selection of a successor trustee, perhaps through the appointment of a trust protector.
The choice is yours
We invite you to learn more about our capabilities as trustee for your family. You may designate us to serve as sole trustee, or as cotrustee along with family members. Call us to discuss the possibilities.
© 2024 M.A. Co. All rights reserved.
Some information provided in the Knowledge Center may be obtained from outside sources believed to be reliable, but no representation is made as to its accuracy or completeness. This information is intended for discussion purposes only and should not be considered a recommendation. The information contained herein does not constitute legal, tax or investment advice by Country Club Trust Company. For legal, tax or investment advice, the services of a competent professional person or professional organization should be sought. Trust services and investments are not FDIC insured, are not guaranteed by the Trust Company or any Trust Company affiliate, and may lose value. Past performance is no guarantee of future results.