Tom Schiller, CPA, Plante Moran
Trust administration and estate settlement can be daunting. It’s one thing to accept this position of honor in theory — it’s another to carry out the myriad of responsibilities at hand. So what’s the best option? Family member? Trusted advisor? Professional trustee?
What Are a Trustee’s Roles and Responsibilities?
A critical component of any estate plan is selecting an appropriate trustee. There are several options, most commonly, a family member, a trusted advisor, or a professional trustee. While virtually any adult could serve as trustee, the role comes with significant responsibility. Trustees must be able to:
- Perform comprehensive document review and file documentation for assured compliance with all trust provisions.
- Provide regular communication and accounting to all beneficiaries.
- Calculate and disburse income and other distributions.
- Collect benefits and pay bills, as well as notify potential and known creditors.
- Inventory and value trust assets.
- Manage income and principal cash, using discretion appropriately and fairly.
- Select and monitor investments for the assets, or partner with a professional firm to manage investments.
- Develop an investment policy statement that is consistent with the trust’s purpose.
- Minimize taxes and ensure that all tax returns, including 1041s and estate tax returns, are filed in a timely manner.
- Handle special assets such as real estate, partnerships, and family-owned businesses.
- Seek legal interpretations when necessary to ensure that both intent and wishes are met.
A good trustee must come equipped with unquestionable ethics, financial savvy, orderly recordkeeping skills, and sensitivity to emotional and financial needs. Add to these requirements someone who truly knows what a trustee’s duties and responsibilities are, someone who will do so efficiently and economically, someone who has the time, and most importantly, someone who is willing to act as trustee and will continue to do so in the future.
A family member could be part of the immediate or extended family. It should be someone with sound judgment and dependability. As a trustee, they cannot favor one beneficiary over another, assets cannot be used for the trustee’s benefit, and assets must be kept separate.
- Understands the family dynamic.
- Can facilitate meetings and encourage communication among family members.
- Can disrupt family harmony, with real or perceived conflicts of interest.
- Might not have the requisite expertise and/or time to carry out the administrative components necessary to serve as trustee.
- With lack of experience and/or time comes cost — from family investment advisors to CPAs to property managers. In the end, this could be more expensive than hiring a professional trustee to oversee all aspects of estate settlement.
- Lack of continuity for future generations.
- No oversight/checks and balances to ensure estate plan goals/objectives are met.
A trusted advisor could be an attorney, financial planner, or other member of a family’s inner circle.
- May understand family history, dynamics, and objectives/goals.
- More fully aware of grantor’s original purpose and intent. This is critical to trust administration.
- Possibly lacks the time, energy, or resources to fully attend to roles and responsibilities, as this is likely the individual’s “second job.”
- May not have experience or an understanding of the responsibilities associated with being a trustee (especially regarding investment oversight); this could be a burdensome responsibility.
- Continuity for future generations could be interrupted.
- No oversight/checks and balances to ensure estate plan goals and objectives are met.
A professional trustee can be found in traditional banks, family-owned private trust companies, or in independent wealth management trust companies.
- Peace of mind that the grantor’s directions will be carried out according to the estate plan by an unbiased professional.
- Sophistication — professional trustees will have the right resources to provide for your family, even beyond estate management as they address succession planning, charitable gift planning, budgeting, and more.
- Grantor’s wishes are executed securely and privately, without disrupting family harmony.
- Oversight — professional trustees are subjected to state examination, audits, and have dual controls in place to ensure accountability.
- Convenience and continuity with current family advisors.
- Overall costs are consolidated, controlled, and leveraged by a third-party service provider, typically resulting in savings.
- Possibility of getting “locked into” a particular professional trustee.
- May not have the same level of relationship with the family as a friend or trusted advisor.
- Cost is often perceived as prohibitive, or simply misunderstood.
As you can see, each option has its advantages and disadvantages. It’s important to remember, however, that the best answer could be a combination of trusted advisor and professional trustee, or friend and professional trustee. Choosing the right trustee or co-trustees for your estate plan is critical. However, understanding the responsibilities that accompany the role, as well as the potential pros and cons associated with a friend, trusted advisor, and professional trustee will allow you to open discussions to ultimately arrive at the best decision for you and your family.