5 Considerations When Choosing an Estate Trustee

There is no doubt that the use of a living trust associated with the development of an estate plan can be a challenge and is complicated. And a significant part of that challenge in the use of a living trust is naming a trustee.

This column provides five considerations when a federal employee or a retiree chooses a trustee as part of the development of a proper estate plan.

If a federal employee or retiree chooses a friend or family member to be the estate trustee, then the person chosen should be trustworthy and up to the task. If a financial professional (such as an accountant, a financial planner, a lawyer, a bank, or a trust department) is chosen, then there could be significant fees associated with hiring a financial professional.

When is a living trust used as part of an estate plan?

Living trusts are often used for estates that have a significant amount of assets and possible complications. For example, a living trust may be used when an individual has children or grandchildren with special needs. Moreover, a living trust also allows individuals to exercise greater control over how and when their money is disbursed to their heirs, both when they are living and after they are deceased. This is different than leaving their money outright to a beneficiary in a will.

It makes no difference what type of living trust an individual chooses to establish – a living trust in which the trustor (the individual who establishes the trust) creates a living trust which outlines the trustor’s wishes for his or her estate, or a testamentary trust that is part of will. A properly designed living trust will minimize the probate process and becomes irrevocable after the trustee’s death. Naming a trustee following the death of the trustor is one of the most important estate planning decisions an individual can make. The following are five considerations for selecting an estate trustee:

#1 – Financial know- how.

Trustees are responsible for making financial decisions related to the assets held in the trust. A trustee must therefore have experience in financial matters. Trustee responsibilities can include investing the money held in a trust or hiring a professional to invest the assets for the benefit of adult children.

But the responsibilities can linger on for years, especially if there are minor children involved. A good trustee should be comfortable supervising and collaborating with financial professionals which can include attorneys, accountants, stockbrokers, and property managers.

#2 – Should a co-trustee be hired?

Some trustors are willing to overlook a lack of experience since the trustee candidate they are considering has a good relationship with the heirs or is particularly close to the family. In these situations, it can be helpful to have a co-trustee (possibly a professional such as a lawyer, or a bank, or a trust department) to assist in the event the trustee chosen lacks experience or knowledge in some aspect of administering the trust.

In this situation, the two co-trustees have to act unanimously, which in itself is advisable for check-and-balance purposes. It is also obvious that the co-trustees have to work well together.

#3 – When should a professional be hired as a trustee?

Among the reasons that a professional trustee (such as a bank or trust company, or a private professional trustee that offers their services on a full-time basis) should be hired are:

(1) In some cases, a trust can last for three or more generations, as many as 80 to 100 years. A bank or a trust company is in a better position to provide continuity of trust administration for many years as well as adjusting to any changes; and

(2) In the likelihood of when family conflicts should arise, a professional trustee can help preserve family relationships while ensuring that trust distributions are made appropriately.

#4 — Which type of professional should be chosen as trustee?

Using a bank is generally recommended for trusts whose assets exceed $5 million. A trust company or a professional individual fiduciary may be more appropriate for trusts in the $1 million to $5 million asset range. In terms of fees, most banks and trust companies charge 0.5 percent and 2 percent of the overall value of the trust they are administrating.

A private professional fiduciary may be a better option for smaller estates for several reasons, the most important of which is cost. These professionals typically charge an hourly rate, which could range from $150 to $250 per hour.

Another factor that needs mentioning with respect to choosing a professional trustee – accessibility. How accessible is the professional by phone? By email? If they are not available immediately to answer phone calls or emails, how quickly do they return phone calls or emails?

#5 —  If choosing a family member as trustee, how much time can the family member afford to function as trustee?

When choosing a non-professional trustee (for example a family member) it is important that the non-professional not only has the skills to function as a trustee in this capacity, but also has the time to do and complete the necessary trustee tasks.

The non-professional may have to spend weeks or months carrying out the role of trustee. Family members in particular who have full-time responsibilities such as parenting of children and full-time employment (particularly family members who live out-of-town and who will likely have to travel in order to fulfill their responsibilities) may not be an appropriate choice as an estate trustee. The family member may not realize the amount of effort and time it will take to accomplish the task of an estate trustee when accepting that position.