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When you create a trust, you must choose someone to serve as the trustee. The trustee will be the person responsible for handling the management and distribution of the assets owned by the trust. Choosing the right trustee is one of the most important decisions you will make on your estate planning journey.
The role of a trustee typically falls upon either a close friend or family member, or a trusted professional fiduciary. In some cases, a corporate trustee is can be an excellent option. Before you start to make a list of candidates, remember to consider the weight of what you are asking of your potential trustees. Even if you trust your loved ones implicitly, they may not be well suited for the task and they may not be comfortable with the responsibilities.
At Sessa & Dorsey, we help our clients establish trusts and guide them in choosing a trustee. Below, we have outlined some key factors and considerations to keep in mind when choosing a trustee.
The Duties of a Trustee
In addition to being responsible for the trust assets and communicating information to the beneficiaries, the trustee may be expected to make difficult personal decisions when a beneficiary requests funds.
The legal and financial responsibilities of a trustee may include:
- Filing life insurance claims
- Filing federal and state tax returns
- Liquidating assets as needed
- Keeping and updating accurate records of trust assets
- The leasing or selling of property
- Managing trust investments (often with professional assistance)
- Determining when distributions to beneficiaries are proper
Loved One vs. Professional Fiduciary
Many people choose a close friend or family member as the trustee typically for one of two reasons. One, your loved ones understand you and your wishes on a more personal level than a professional fiduciary. Two, they will typically either not charge, or charge a smaller fee for their services than those of a professional.
If requesting the services of a loved one to act as your trustee sounds appealing, we recommend only considering the people in your life you know to be timely, trustworthy, and extremely financially responsible. Trustees are often required to communicate with attorneys and accountants, so you should also choose someone who knows when to delegate certain responsibilities.
Professional fiduciaries will typically have less familiarity with you and your family, but unlike your loved ones, they are usually trained to handle trustee functions, are committed to their roles, and often have significant experience serving as trustees.
Attorneys and Accountants
As a trustee, family attorneys and accountants can often combine the benefits of choosing a loved one and choosing a trust company. Having worked alongside you and your family in the past, a trusted attorney or accountant may possess a deeper understanding of your personal situation and your desires regarding the trust.
If you choose your personal attorney, accountant, or financial advisor as your trustee, you likely will not have to worry about whether they are up to the task of handling the administrative duties of the role the way you would with a loved one that has an existing full-time job. Attorneys and accountants also may be more cost-efficient than some trust companies.
Trust Companies (Corporate Trustee)
A trust company is a legal entity that handles all the administrative responsibilities of an independent trustee and is often a part of a larger financial institution.
Trust companies may be a more attractive option for those with large estates and/or a large number of beneficiaries. Those with estranged or combative beneficiaries may also want to consider employing the services of a trust company to help mitigate the situation and act as a neutral third party. Trust companies also eliminate the fear that an individual trustee may become incapacitated or unable to carry out their duties. When thinking about using a trust company as a trustee, understanding the costs and comfort in working with your beneficiaries should be considered.
In many cases, a trust company will handle the administrative duties and investment responsibilities of a trust under one umbrella.
When choosing a trustee, there is no one single choice that can be applied to everyone’s unique situation. It is important that you carefully weigh your options, understand both the benefits and disadvantages of each possible choice, and consult with your loved ones and trusted advisors to reach the best decision.
If you have questions about choosing a trustee, please contact us at (443) 589-5600. At Sessa & Dorsey, we consider the bigger picture at hand and advise our clients on the best estate planning tools for their specific needs and desires.
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