By FPA Members Elaine King, CFP®, CDFA™, and Philip Herzberg, CFP®, MSF
Last Updated: September 7, 2010
Selecting the right family or professional trustee(s) to be responsible for investing and distributing your estate is one of the most important decisions in executing an estate plan and preserving your family legacy. In addition to desiring the trustee to be well-organized and capable of administrating the trust according to trust document conditions, you should designate a trustee who has supreme integrity in handling the investment, legal, tax, and interpersonal issues that arise with this planning. Refer to the FPA Checklist How to Choose a Trustee for further guidance on fundamental considerations in selecting a trustee.
Is the family member you have named as a trustee to manage your trust assets up to a long-term responsibility? While always keeping in mind that a spouse, adult child, or close relative can hire a financial planner, tax professional, or attorney to assist, you need to be unequivocally certain that the selected family trustee has the essential financial skills and objective, even-keeled decision-making capacities to make your trust of benefit to your family’s well-being. Highly lean towards designating your spouse or adult children as trustees if they get along with each other and are competent to deal with the financial matters involved.
In light of health concerns of trust candidates and frequent family conflicts among trust beneficiaries, you commonly face the dilemma of whether a family member has the financial savvy, diplomacy, and emotional stability to be appointed as a sole trustee. After thorough assessment of their attributes, you should evaluate choosing a professional trustee, such as a trust company, if you have any reservations in fully trusting a family member as a sole trustee.
You should peruse and evaluate the following insights and factors when thinking of hiring a bank or corporate fiduciary as a professional trustee:
- Select a professional trustee for larger and more complex estates. As a rule of thumb, for smaller and simpler estates, you are more likely to utilize a family member or individual as a trustee. Conversely, if the size of your estate is too complicated and overwhelming to administer, you would likely benefit from naming a professional trustee to devote the necessary time and skills to manage the investment, tax, and interpersonal trust issues.
- Consider a professional trustee after evaluating family dynamics and securities and tax management skills of family trust candidates. Determine whether a potential family trustee designee can carry out the terms and provisions of the trust to minimize estate and income taxes, while investing the funds to maximize return based on the beneficiaries’ needs. You can identify a professional trustee to serve as a co-trustee with a family member or sole-trustee, in the event you lack confidence in your family beneficiaries to get along with one another and oversee the trust for the welfare of the family.
- Choose an appropriate professional trustee after evaluating the purpose of your trust and assessing fees. You should select a professional trustee focusing on the intent and specific purpose of your trust. For example, if the objective of your trust is to oversee the distribution of assets to minor children and young adults, you can designate a professional trustee who will be flexible and sensitive to the changing needs of the trust. Weigh having a professional trustee serve as a co-trustee to place a check and balance decision-making system for larger estates and trusts with children from prior marriages or blended families (i.e. stepchildren). Consult with a legal and financial planning professional when evaluating this planning in relation to your family dynamics. When depending on a professional trustee, you should also consider that most corporate and professional fiduciaries charge annual fees, commonly based on the percent of value of the trust assets and specific work performed by the trustees.
Foremost, you should select a professional trustee who has profound and intimate knowledge of both your family’s immediate needs and long-term aspirations to cultivate the ideal professional trustee-beneficiary relationship.
Clearly, if needed, you can assure yourself peace of mind and preserve your family’s legacy by prudently identifying the right adequate professional trustee. To ensure your wishes are executed and since a trustee may be revoked after your death, it is essential to communicate your decision making process with your family and future beneficiaries.
FPA member Elaine King, CFP®, CDFA™, is Vice President, Director of Wealth & Well-Being at Gibraltar Private Bank & Trust. FPA member Philip Herzberg, CFP®, MSF, is Director of Media Relations & Public Awareness for FPA of Miami-Dade.