Want to be a trustee?
Over the next decade, trillions of dollars will be passed to future generations. Trusts have become a common strategy for estate planning. Naming the right trustee is crucially important. This should be a business decision, not an emotional one. The trustee has an array of responsibility. Understanding your responsibility as trustee or the responsibility you designate is crucially important.
Different types of trustees
There are three different types of trustees to choose from: Independent, Individual, and Bank.
These are trust companies that are not a part of a bank. They do not have corporate interest. The services they offer are trust administration,investments and accounting. Independent trustees that are advisor friendly delegate the investment management to an outside fiduciary. Independent trustees offer negotiable fees. Examples of Independent Trustees are Wealth Advisors Trust Company, Cumberland Trust, Alliance Trust Company.
This is typically a friend or family member. So, this individual should be intelligent and capable of making complex decisions. Individual trustees have the responsibility to manage the trust assets. You can appoint multiple individuals to serve as trustee. Individual trustees usually do not charge a fee. There are a few things to keep in mind when choosing an individual trustee. Individual trustees can be held liable for trust legal issues, and when that individual dies trust assets must be transferred to someone else.
A bank trustee is tied to a bank. They administer, manage, and invest the trustee assets. They also offer executor services. Bank trustees manage the investments of the trust assets by keeping them in house. The advantages of using a bank trustee include, continuity, protection of funds, and controlling conflicts of interest.
A trustee has control over the trust assets. The two key responsibilities are to manage and distribute the trust assets. Above all, the trustee must follow the instructions outlined in the trust document. Here is a list of a few other responsibilities:
- Duty of care
- Safeguard trust estate
- Investment management
As trustee, you play a crucial role in the lives of beneficiaries. As a result, it is a huge responsibility paired with potential liability. If the trust document allows for discretionary distributions, then you decide when/who gets their money.
Risks of being a trustee
In conclusion, trustees assume legal risk when they take on these responsibilities. Not every type of trustee is a good candidate for your trust. Understanding your options are key. Therefore, sometimes a good option maybe to have both an individual and corporate trustee. Corporate trustees offer what is called agency trustee services. This allows the individual to delegate tasks to a corporate trustee. They still have control, but don’t have to worry about other tasks. This takes the burden off individual trustee. Consult with your attorney or advisor about which option may work best for you.