Choosing a Trustee

There are many reasons to establish trusts including the efficient transfer of wealth, avoiding probate, philanthropic commitments, tax reduction, or protecting assets, among other things.

Ten years ago, the tax reduction benefits were applicable to more people because the estate tax exemption (the threshold where estate taxes kick in) was $1.5 million. Today, the exemption is $5.34 million and, therefore, affects far fewer people.

That doesn’t mean that you don’t need an estate plan – on the contrary. The lack of an estate tax simply means that there is less tax planning and more true estate planning – answering the classing questions: who should get how much, when and how?

In my opinion, one of the most difficult – and important – elements when creating a trust is choosing a trustee.  Who will take care of your minor children and manage your financial assets and insurance proceeds?

There are a number of options worthy of your consideration, starting with family members and friends. The advantage of a family member or friend is that they care, know you and may be in a good position to know what you would want.

The problem is that most people are not experienced in these matters and the responsibilities can be burdensome, from asset management, tax planning and compliance, trust accounting, administration and other duties that require expertise.

Corporate trustees can be a good solution – they are experienced in the technical details and the real world questions (should we distribute assets so the beneficiary can buy a new car?), are objective, and offer long-term continuity.

Of course, unlike friends and family members, they are also more expensive and sometimes people find them uncooperative (although this can be because beneficiaries want the money regardless of what the trust calls for).

Your friendly neighborhood investment advisor, while excellent at many things, is probably not a good choice for a trustee. While they can be great with the money and understand the concept of being a fiduciary, registered investment advisors are legally different from trust companies and actually can’t serve as trustee.

Lawyers can be a good solution because they obviously have knowledge of the law and often know the details of a family’s affairs, but they may not want to do the trust administration or asset management.

In my experience, a combination is often the best approach, appointing co-trustees like a family member or friend and a corporate trustee.

Until a few years ago, the corporate trustee always acted as the investment manager, but new laws allowed the responsibilities to be split (or bifurcated to use a fancy term), so that the administrative duties are separate from the investment management tasks.

At this point, we’ve had multiple clients name a corporate trustee in their documents and specify Acropolis as the investment manager, and we’ve found that with the right corporate trustee, the process can be seamless.

Finding the right balance when choosing a trustee can be difficult, but it’s critically important, especially if your situation isn’t simple and straightforward.