Trusts are powerful tools, and the trustee you select can make a difference.
Whether you’re transferring your business or your personal assets, a trust can be an effective way to carry out your plans.
“Trusts are extremely flexible vehicles for setting out your wishes and making sure they’re followed,” says Aaron Reber, senior vice president and director of Institutional and Personal Trust for Huntington Private Bank†.
Yet establishing a trust is just the start. You also need to choose a trustee or trustees able to manage the complex tasks involved in making sure provisions are followed. As administrator of the trust, the trustee must keep accurate records and provide account statements, invest trust assets prudently, communicate with trust beneficiaries, make disbursements, and pay taxes, explains Jennifer Jones, National Fiduciary Executive, Huntington Private Bank‡. If someone you choose doesn’t have the expertise, time, or temperament, you could risk having your trust’s assets affected and your wishes ignored. Reber and Jones recently discussed some points to consider.
What does the role of trustee involve?
Jennifer Jones: A trustee has a fiduciary duty to act on behalf of the trust’s dictates, which you, as the grantor, determine. Overseeing a trust or an estate involves management and distribution of assets, which could include a business and its assets, marketable securities, real property, and other valuables such as collections of artwork. Serving as a trustee has major legal and financial responsibilities, all of which have serious impact on the trust, the trustee, and the trust’s beneficiaries.
Who can serve as a trustee?
Aaron Reber: Anyone can serve as a trustee, including a friend, a family member, or a professional individual or entity. But because serving as a trustee may involve complex decisions and a substantial time commitment, it’s important to know that the person or people you choose will be able to meet the demands. You can also name more than one trustee if you’d like, to get the advantages of both personal and professional trustees.
What are the advantages of appointing a family member or friend?
Reber: Friends and family know you well and are likely to have a clear sense of your personal wishes. But bear in mind that appointing a family member as a trustee can create an inherent conflict, especially if that trustee is also a beneficiary of the trust. Not only are you asking the potential trustee for a lot of time and work, but you could also be subjecting them to intense family conflict or even legal implications. For example, having your child tell your sister that she won’t get what she expected could put them both in an uncomfortable position.
What are the advantages of choosing a professional trustee?
Jones: A professional trustee such as a lawyer, accountant, or bank is versed in the state trust laws and all the duties that go along with that, something that may not be true of your best friend or brother. Professional trustees can also offer a sense of consistency in how they administer the trust, a role that could extend over generations. In addition, professional trustees are held to a higher standard of fiduciary care than an individual trustee, and as such must act in the best interest of the trust, following specific methods of accounting and of advising beneficiaries. Lastly, a professional trustee is a neutral party, which can be helpful should conflicts arise among the beneficiaries or if a mistake is made and the trust must be reimbursed.
What role can a trustee play if the grantor experiences cognitive decline?
Reber: A trust is drawn up during the grantor’s lifetime to make sure that person’s wishes are followed even after death, with the hope that no action will be needed until that happens, far in the future. But if a grantor is concerned about his or her possible cognitive decline or incapacity, a trust can designate a successor trustee to play a role if a specified process determines the grantor is no longer able to oversee the trust. This can be a helpful provision, particularly if the trust is part of a business transition, which could necessitate immediate decisions.
How can a professional trustee help family members?
Jones: When you’re dealing with the incapacity or death of a loved one, trying to couple that emotional and physical strain with the business relationship of serving as a trustee can be overwhelming. But for professional trustees, this is their job. They have everything in place to be able to support the needs of the beneficiaries and of the grantor. If the grantor is incapacitated or at that person’s death, a professional trustee will be prepared to step in and begin managing all aspects of the trust.
