A trust can be a powerful tool, and the trustee you choose can make a meaningful difference in how your wishes are carried out. Choosing the right trustee involves understanding the responsibilities involved and the demands of administering a trust over time.
Whether you’re transferring a business or personal assets, a trust can be an effective and flexible way to carry out your plans. However, establishing a trust is only the first step.
As administrator of the trust, a trustee is responsible for keeping accurate records, providing account statements, investing trust assets prudently, communicating with beneficiaries, making distributions and handling tax-related obligations. If the individual or entity you choose lacks the appropriate expertise, time or judgment, both trust assets and family relationships may be at risk.
What is a trustee?
A trustee can be a friend, family member or a professional individual or organization. Because serving as a trustee may involve complex decisions and a significant time commitment, it’s important to choose someone who can meet the demands of the role. You can also name more than one trustee. In some cases, combining personal and professional trustees can help balance family familiarity with technical expertise.
What does a trustee do?
A trustee has a fiduciary duty to administer the trust according to its terms and in the best interests of the beneficiaries. In practice, this means balancing competing interests, following legal requirements and exercising discretion in situations that are not always clear.
Trust administration can involve overseeing various assets, such as a closely held business, investment portfolios, real property or personal assets like an art collection. Decisions around investing, valuing assets and making distributions can carry significant legal and financial consequences, which is why the role requires objectivity, sound judgment and careful documentation over time.
What are the potential issues with appointing a family member or friend?
Family members and friends often have personal insight into your wishes and family dynamics, which can be an advantage. However, it’s important to keep in mind that choosing a close contact may place a burden on the relationship, particularly when the trustee is also a beneficiary or must make decisions that not everyone agrees with.
In these situations, trustees may be asked to balance legal obligations with emotional considerations, manage disagreements among beneficiaries or communicate outcomes that are disappointing or unexpected. Even when handled carefully, these responsibilities can introduce stress or strain into previously healthy relationships.
In addition, the role requires time, organization and comfort with legal and financial oversight. Asking a family member or friend to step into a fiduciary role can effectively turn a personal relationship into an ongoing business responsibility, with potential legal and personal consequences if challenges arise.
What are the advantages of choosing a professional trustee?
A professional trustee, such as a lawyer, accountant or bank, is typically more familiar with state trust laws and the responsibilities that come with administrating a trust. This experience can be especially valuable when a trust involves complex assets, multiple beneficiaries or long time horizons.
Professional trustees are held to defined fiduciary standards and are required to act in the best interests of the trust. As an objective third party, a professional trustee can also help manage decisions consistently and reduce the potential for conflict among beneficiaries.
In addition, professional trustees can offer continuity over time. Unlike an individual trustee, a corporate trustee can continue serving without disruption caused by changes in availability, health or personal circumstances, which can be important for trusts intended to span multiple generations.
What role can a trustee play if the grantor experiences cognitive decline?
While many trusts are designed to operate primarily after death, some types of trusts allow a trustee to step in during the grantor's lifetime if the grantor is no longer able to oversee certain responsibilities themselves.
In these situations, a trustee may be authorized to assume defined duties when specific conditions outlined in the trust document are met. This structure can help support continuity and decision-making during periods of incapacity to ensure the grantor's wishes are carried out as intended. This scenario is often seen when a trust is connected to business interests, ongoing investments or planning objectives.
How can a professional trustee help family members?
When you’re dealing with the incapacity or death of a loved one, trying to manage the emotional strain alongside the responsibilities of serving as a trustee can be overwhelming. Separating personal relationships from the administrative and fiduciary duties of the role is not always easy, particularly during stressful periods.
For a professional trustee, however, this work is the role itself. Professional trustees have systems in place to manage the administrative, financial and reporting responsibilities required to carry out the trust’s terms and support beneficiaries.
By serving as an objective third party, a professional trustee can help ensure the trust is administered consistently and as intended, allowing family members to focus on personal matters rather than ongoing administration.
