If you are thinking about establishing
a living trust, you will also need to give considerable thought
to selecting a trustee. Perhaps you are considering naming a family
member. Or, you may be wondering whether it would be wiser to designate
your attorney or another trusted professional. In addition, you
may also be aware that a bank trust department can act as a trustee.
As the grantor, you should choose a trustee with care. Here is
some information on the role of a trustee, and the benefits and
tradeoffs of the different choices available to you.
A trustee is
a person or an institution selected to administer a trust. A trustee's
role is to comply with the terms of the
trust and fulfill its objectives. In selecting a trustee, you
must weigh many personal, family, investment, and business
concerns. For instance, an important consideration is the size
and complexity of the trust. Corporate and professional trustees
possess the accounting, tax planning, and investment experience
necessary to manage large, complicated trusts. Bank trust departments
offer the benefits of greater portfolio diversification, although
they may tend to invest more conservatively, which may or may
not appeal to you. On the other hand, small trusts generally
do not warrant professional management.
Duration is another significant concern. A trustee's responsibilities
often span one or more generations. Corporate fiduciaries have
the advantage of perpetual life (although the individuals administering
the trust may change over the years). This longevity also allows
them to better fulfill the record keeping and reporting requirements
of federal and state governments and the supervising court. If
you have decided to appoint only individual trustees, consider
designating co-trustees or successor
trustees to address longevity
concerns.
Advantages of Professional Trustees
Corporate trustees have other advantages, as well. Since they
are more likely to remain in the same location, they may be more
likely to stay in close proximity to beneficiaries. They may
also be more impartial in considering beneficiaries' needs than
family members, who may face conflicts of interest. Also, corporate
and professional trustees are held to a higher standard of professional
conduct than nonprofessionals. Of course, professional service
comes with a price. Many grantors of small trusts choose nonprofessional
trustees to avoid high corporate fees.
Benefits of Family Members
When a personal touch is needed, family
members or other nonprofessionals, who know the family, offer
special advantages as trustees. They
generally have the greater sensitivity and flexibility required
to support the special needs of a beneficiary, such as a handicapped
child, which may be the primary purpose of a trust. A family
member or business associate may also be the preferred choice
if you are leaving a business in trust. Corporate trustees generally
do not run businesses; they sell them and invest the proceeds.
Best of Both Worlds
Often, a combination of professional and
nonprofessional trustees may work best. Corporate or professional
trustees provide trust
management expertise,
while family members or other nonprofessionals may be better able to understand
and respond to the changing needs and circumstances of beneficiaries.
It is best to consult a qualified legal professional when selecting
a trustee, especially since an inappropriate choice of trustee
could invalidate a trust or have serious tax consequences.
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