If you’re thinking of setting up a trust, one of the most important decisions you’ll make is who will act as trustee—the person responsible for managing your assets and distributing them to the beneficiaries you choose.

Important Qualities of an Effective Trustee

  • Integrity
  • Objectivity, or neutrality
  • Freedom from conflicts of interest
  • Availability
  • Expertise in trust management
  • Communication skills
  • Succession plan

Many people choose a friend or a family member to act as trustee upon their death.  They believe that beneficiaries will be treated with compassion and an understanding of family dynamics by someone who understands their personal circumstances.

However, in many cases it makes sense to hire a professional trustee, who can often manage the trust more efficiently and consistently than even the most well-intentioned family friend.  As you make your decision, consider what qualities an effective trustee should have:

Integrity:
While integrity is an essential quality for any trustee, it is a sad case when family members or friends do not have this.  In some cases, professional trustees need to be hired to provide honest management and clear accounting.

Objectivity:
Often family feuds run high over personal issues, sentimental attachment to personal property, vacation homes, collectibles, etc.  It can be difficult for a family member trustee to resolve these sensitive issues.  When this occurs, it may result in broken relationships and/or expensive lawsuits.  An objective professional trustee may be better positioned to mediate potential disputes and eliminate potential conflicts of interest.

Availability:
Trust management requires a time commitment.  Generally, a professional trustee can more efficiently manage a trust in less time than a layperson that may be functioning in this role for the first time.

Expertise:
Your trustee needs to understand and follow the laws governing trust management. In addition to managing assets and making payments, trustees may need to file financial reports and tax returns and make decisions regarding many financial aspects related to the trust beneficiary.

Communication skills:
A professional trustee will typically provide regular updates to grantors and beneficiaries, and inform them when decisions or milestones are approaching.  The rationale for these decisions should be documented with all files open to beneficiary review.

Succession plan:
Trusts can exist for many years, so it’s important to plan for contingencies, including the death or incapacity of the trustee. A professional trustee will provide a backup plan to ensure the trust is effectively managed over any time frame.

A professional trustee can help with:

  • Complex asset holdings – Real estate, farms, commercial property, oil and gas leases, mineral rights, collectibles and other non-liquid assets
  • Complicated family dynamics – Blended families, personal conflicts, addictions, mental illnesses
  • Legal issues – Ongoing litigation or mediation

What Does It Cost?

All trustees have different fee schedules.  Commonly these include an annual percentage fee based of the market value of the trust, or an hourly-based fee.  There may be additional fees for tax preparation or court accountings.  Fees will vary greatly based on the type of trust and the duties involved.

Other Ideas Regarding Management

You can name a corporate trust company to handle both the administrative tasks and the investment management of the underlying trust investments. Alternatively, there are ways to continuing using an investment advisor of your choice while still using a professional trustee. Recently, the laws regarding trust management in Washington State have been amended to allow greater flexibility in the use of advisors.

A professional trustee can help with:

  • Complex asset holdings – Real estate, farms, commercial property, oil and gas leases, mineral rights, collectibles and other non-liquid assets
  • Complicated family dynamics – Blended families, personal conflicts, addictions, mental illnesses
  • Legal issues – Ongoing litigation or mediation

Consider Selecting a Co-Trustee or Successor Trustee

If you’d like to have a family member involved but also like the idea of having professional trustee oversight, consider having both included in your plan, in which both parties would work closely together.  This is commonly referred to as naming co-trustees.  Another option is to name both a primary trustee and a successor trustee, who can continue to act as trustee in the event the current trustee is unable or unwilling to serve.  If you don’t know who might serve as successor trustee, your plan should allow the current trustee the ability to choose a successor trustee.

As you can see, there are many things to contemplate when choosing a trustee.   As your planning needs change over time, it’s important that your own estate plan be reviewed and updated periodically.  If you have questions about your specific plan, please contact your estate planning attorney.  Or if you are in need of a recommendation for an estate planning attorney or professional trustee who can provide additional guidance for your specific planning needs, please contact your Paracle advisor.

Thank you to Stephen Trefts, President of Northwest Trustee and Management Services, for contributing to this article.

Disclaimer: This article has been provided for informational purposes only and should not be considered as investment advice or as a recommendation. This material provides general information only. Paracle Advisors does not offer legal or tax advice. Only private legal counsel may recommend the application of this general information to any particular situation or prepare an instrument chosen to implement the design discussed herein. CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the IRS, this notice is to inform you that any tax advice included in this communication, including any attachments, is not intended or written to be used, and cannot be used, for the purpose of avoiding any federal tax penalty or promoting, marketing, or recommending to another party any transaction or matter.
Paracle Advisors is an investment advisor registered with the Securities and Exchange Commission.