Considerations When Selecting Trustees
January 19, 2022 - Publication
Generally, in connection with the preparation of estate plans, we see clients select trustees from the following groups: family members, friends or business associates, trust companies, and professional advisors. Here are some common considerations in selecting among these groups when you designate a trustee or successor trustee for a trust.
Family Members. The primary advantages of naming your close relative as trustee are the relative’s loyalty, familiarity with your family dynamic, and potential willingness to serve for free (or for a low fee). The disadvantages of choosing your relative as trustee is that he or she may have a conflict of interest (by being both a beneficiary and a trustee), lack relevant experience or skills, or have difficulty saying no to beneficiaries. Your relatives who are not selected as trustee also may become resentful of the relatives you selected.
Friends or Business Associates. One way to pivot from selecting family is to choose a close friend or business associate. Ideally, your friend or associate will provide a personal touch as trustee that will be similar to that of a relative, but without being close enough to take part in family drama (if any, wink wink). Note, however, that your friend or associate might have the similar shortcomings as your relatives, as noted above.
Trust Companies. For some people, trust companies can be a good choice to serve as trustee due to their expertise and objectivity. In addition, trust companies have insurance, which protects beneficiaries if the trustee’s mistakes or actions harm the beneficiaries. The primary disadvantages of using trust companies are that they lack familiarity with your preferences and family dynamic, can be slow-moving, typically have the highest fees, and are able to evolve, meaning that their policies, the employee managing your trust, etc. can be changed by the trust company at any time. As another advantage, trust companies also typically have investment expertise and well-defined investment strategies. While this is advantageous most of the time, a trust company may be unable or unwilling to follow the investment approach that you believe to be appropriate.
Professional Advisors. Your financial advisor, accountant, attorney, or other advisor best resembles a hybrid of your friend and a trust company based on his or her relevant expertise, knowledge of your intentions, familiarity with your family, and lower fee structure than a trust company. Not every advisor makes an effective trustee, however. Time constraints, policies within the advisor’s firm, and conflicts of interest with beneficiaries are common issues that can make it difficult for an advisor to effectively function as trustee.
In considering your options as to whom should serve as your trustee, ask yourself: What is the trust directing the trustee to do? And for what length of time? Who would you trust to follow those directions? Is the trustee (or successor trustee) you are designating willing to follow these directions? What does the trust say about removing or replacing a trustee? What are your biggest concerns surrounding the trust? What should or could the trustee do to address these concerns?