One of the most popular additions to a well-rounded and comprehensive estate plan is a trust. If you are considering the addition of a trust to your estate plan, one of the decisions you will need to make is who to appoint as your Trustee to administer your trust. For many people, having a professional or corporate trustee is a good option for several reasons which we will discuss below.
First, What Is a Trust?
A trust is a legal relationship where property is held by one party for the benefit of another party. The person who creates a trust is referred to as the “Trustor” or “Grantor.” The Trustor transfers property to a Trustee, appointed by the Trustor. The Trustee holds that property for the trust’s beneficiaries, also named by the Trustor. The overall job of a Trustee is to protect and invest trust assets and to administer the trust terms found in the trust agreement. Trusts all fall into one of two categories – testamentary or living trusts. A testamentary trust is activated by a provision in a Will at the time of death, whereas a living trust activates once all formalities of creation are in place and the trust is funded. Living trusts can be further divided into revocable and irrevocable living trusts.
Trust Administration: Trustee Duties and Responsibilities
The Trustee of a trust is responsible for managing the trust assets and administering the trust using the trust terms created by the Trustor. Among the numerous and varied duties and responsibilities of a Trustee are the following:
- Managing and protecting trust assets
- Abiding by the trust terms unless they are impossible, illegal, or unconscionable
- Investing trust funds using the “Prudent Investor Standard”
- Monitoring trust investments
- Communicating with trust beneficiaries
- Resolving conflicts among beneficiaries
- Making discretionary decisions
- Distributing trust funds to beneficiaries
- Approving or denying distributions if given discretionary authority
- Keeping detailed trust records
- Preparing and paying trust taxes
Why a Professional Trustee May be a Better Option For You
Many Trustors appoint a spouse, family member, or close friend as the Trustee of their trust without objectively considering whether that person is the right person for the job. The better choice may be to appoint a professional Trustee for several reasons, including:
- Experience – successfully administering a trust requires a certain amount of legal and financial knowledge and experience. The Trustee of a trust should ideally be familiar with all the applicable state and federal laws that govern trust administration. In addition, a Trustee needs to have the financial wherewithal to invest the trust assets in a way that they will grow over the lifetime of the trust. Most of the time a professional Trustee will have more experience and knowledge about trust administration than a spouse, family member or friend has.
- Objectivity – a Trustee may have the authority to make discretionary disbursements if certain conditions are met. A professional Trustee is typically more likely to be objective when deciding if a request for a disbursement should be granted because the Trustee does not know the beneficiary on a personal level.
- Conflicts of Interest– the Trustee of a trust is often called upon to resolve conflicts among beneficiaries and is always required to try to prevent them from occurring in the first place. When the Trustee knows the beneficiaries on a personal level it can be much more difficult to avoid, or help resolve conflicts. Conflicts of interest could easily threaten the success of the trust.
- Willingness to Serve – Trustors often make the mistake of assuming that the person they appoint as Trustee is willing and able to serve. Unfortunately, that is not always the case, particularly if the trust is a testamentary trust because it means that the Trustor recently died. A spouse, family member, or friend may not want to act as your Trustee while grieving your recent death. With a professional Trustee these issues are not a concern.