As you organize your trust to protect, manage, and distribute your assets, you will invariably need to appoint a trustee to oversee its administration. In some cases, the ideal trustee may be an obvious choice. For example, it is not uncommon to appoint a trust beneficiary as a trustee; in other instances, you may elect to hand over the trust’s management to a financial company that is already handling the assets. In many situations, however, selecting and appointing a trustee can be complicated and stress-inducing. Thankfully, there are a variety of options available to you. Here is an overview of three primary types of trustees, with factors you may want to consider in your selection of a trustee.
Family Trustees
Many trustors are inclined to consider appointing close friends or family members to act as trustees. This can be a viable option if the trust is designed to dispense assets within the family.
Pros
- A family trustee may have intimate insights and familiarity with the trustor’s goals and the individual needs of the beneficiaries.
- The trustor may have a particularly close relationship with a family trustee when compared with alternatives.
- A family trustee may be willing to accept the responsibility of overseeing a trust at a lower rate than more professional alternatives.
Cons
- A trustee who is a family member may have conflicts of interest that can hinder objective management of the trust. For example, in some cases the family trustee may be functioning under additional capacities (i.e. financial advisor, legal representative, accountant).
- Relationships between family trustees and close family members can become strained due to differences of opinion about the administration of the trust. Furthermore, beneficiaries may at times question the objectivity of the family trustee because of their relationship with the trustor.
- Family trustees may require support from third parties that can result in added costs in the management of the trust.
- A family trustee’s lack of experience could lead to mismanagement or breaches of the trust’s objectives, creating the potential risk of litigation.
Corporate Trustees
In the event there are no viable familial option available to serve as trustee, a corporate trustee can be a straightforward alternative.
Pros
- Corporate trustees tend to offer greater structure because their businesses are designed to manage a large volume of trusts.
- Without the extensive personal or family history, corporate trustees are usually less partial to any specific family members and/or beneficiaries. Objectivity and fairness is important in responsibly fulfilling one’s trustee duties, particularly when beneficiaries have competing interests.
- Corporate trustees may have access to additional company resources to support the management of your trust.
Cons
- Due to their lack of family history, corporate trustees may be unfamiliar or insensitive to the goals, desires, or concerns of beneficiaries and other family members.
- The relationship with a corporate trustee can feel impersonal and inattentive to the beneficiary’s individual needs.
- Compared to a family trustee, the cost of a corporate trustee is likely higher.
Private Professional Fiduciary
As an alternative to working with a family trustee or a corporate trustee, trustors may opt for a private professional fiduciary to step into the role of trustee. A good private fiduciary has the potential to provide both an individualized touch as well as an objective perspective.
Pros
- A private fiduciary may be more sensitive to the needs and concerns of the family than a corporate trustee.
- A highly experienced private fiduciary can offer a deep level of expertise in executing the role of trustee.
- Many private fiduciaries have strong attorney and CPA relationships that can benefit the family when those services are needed.
- Because private fiduciaries operate independently, they may avoid the bureaucracy that can be encountered in larger corporations, and also may have greater flexibility to integrate with a family’s trusted partners.
- The overall costs of a private fiduciary may be lower than a corporate trustee.
Cons
- A private fiduciary may lack access to some of the resources of a corporate trustee.
- The costs of a private professional fiduciary are often higher than that of a family trustee, but can vary based on the services or resources outsourced to support the trustee’s work.
Decipher How These Options Suit Your Family’s Needs
As you consider these types of trustees —family trustee, corporate trustee, or private professional fiduciary—it is important that the choice you make maximizes the benefits of the trustee relationship and gives your family the expertise and personalized care you expect from a trustee.
If you are seeking advice on how to find an appropriate trustee, Prudent Investors can help. Contact us today to learn more.
