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How to select the right trustee

| May 8, 2019 | Uncategorized |

Trusts are often viewed as a tax planning tool and, if there is a family business, they can protect family assets from creditors. Those are two good reasons to establish trusts, but they can accomplish many things, including managing and preserving wealth for generations.

With such an important objective, selecting the right trustee is critical. Given that a grantor – the person creating the trust – wants someone they trust to serve as the trustee, a spouse or child may seem like the obvious choice. However, this can create numerous complications. For starters, a spouse who is about the same age as an elderly grantor may be susceptible to the same physical and mental health issues as the grantor.

What’s more, a spouse or child may be trustworthy, but lacks the administrative and investment management skills necessary to properly fulfill the duties of the role. “Child-as-trustee situations can be time bombs from a family dynamics standpoint. That can be the case even if family members are in business together, and used to dealing with each other in a financial context,” says contributor Whittier Trust. (Yes, that’s his actual last name.)

Family history may make it difficult for a relative to be impartial in the eyes of all interested parties, an absolute must for the trustee role.

Third-Party Trustees

A bank, trust company, lawyer or accountant can serve as a third-party trustee. Third-party trustees are increasingly common in families where there is a history of disputes, or in blended families where there is a higher potential of disputes occurring. Yes, there is a cost for a third-party trustee, but it can be far less than the six-digit attorney fees that can result from a drawn-out legal dispute if a family member serves as trustee.

Joshua Kennon, an asset management professional, recommends asking these three questions when selecting a trustee:

Is the candidate willing and qualified? Be honest about assessing a potential trustee’s skills and make sure they are willing to serve in that role.

Will a decision put family relationships at risk? Think of all the possibilities you build into a trust and naming a certain trustee, and avoid creating any situation that may pit one family member against another.

Does the trustee offer continuity and protection against malfeasance? Consider the age and health of a potential trustee. Continuity is a benefit of naming a corporate trustee. If you still want the influence of a trusted individual, keep in mind that you can name co-trustees – for example, a family attorney and a financial institution that provides guaranteed continuity.

A knowledgeable estate planning attorney can help you consider all the factors that should be considered when creating a trust and naming a trustee.