In our practice of estate planning, clients typically fall within two solution areas, dictated by the complexity and value of their assets. For those simpler planning needs, will-based estate planning can be an effective way for families to control the transfer of wealth to surviving spouses and children. When those with larger estates and business interests come to the planning table, they often find that trusts are necessary to address challenges related to taxation, as well as mitigating potential issues regarding asset protection and spendthrift heirs.
On the trust side of the equation, we use a number of trust vehicles to address issues regarding homes (Qualified Personal Residence Trusts), large financial assets (Domestic and Foreign Asset Protection Trusts), ongoing income (Grantor Retained Annuity Trusts), and multi-generational wealth transfer (Dynasty Trusts). With each of these trusts, our clients are required to choose a trustee. Depending on the type of trust we are designing, clients may be able to name a family member or have the choice of an independent trustee, such as an attorney or bank trust officer (Note: some specific types of trusts, such as Asset Protection Trusts, require an independent trustee).
Regardless, a trust, like any entity, operates effectively and achieves its goals only when it’s properly maintained. Trustees must have the proper temperament to handle delicate family affairs, be professional in their dealings with family members and service providers, and have an attention to detail, so that proper paperwork is filed correctly and in a timely manner (much as business owners and registered agents must complete corporate formalities for businesses).
When you choose a trustee, you should use the qualifications listed above as a lens through which you’ll view possible candidates, whether they’re family, friends, or an independent third party. As you’re viewing candidates through this lens, think about issues that may arise as they administer your family’s affairs.
With regard to temperament, one of the most common challenges that arises with trust administration is managing family conflict. Typically, the larger the family, the likelihood for conflict compounds, although this isn’t always the case (we’ve seen plenty of arguments among small families). Your trustee will have to deal with conflict often rooted over many years, even decades, based on differing opinions about issues like favoritism, work, and how often particular family members may have benefited from the family’s wealth while others have not. So, based on multiple relationship circumstances, it’s more advisable at times to go with that trusted, respected brother or sister, and in others, you’ll want to get someone as impartial as possible to eliminate or at least largely prevent bickering.
With regard to professionalism and attention to detail, trustees must perform their duties with a high level of effectiveness for all parties. With these duties comes a high level of accountability, and if trustees miss the mark through mistakes, misappropriations, and failure to heed the advice of financial and legal professionals, they can be vulnerable to lawsuits and actions by beneficiaries and taxing agencies. Thus, it’s of paramount importance, especially with more complex estates that often require multiple trusts, to ensure that your named trustees have high levels of business acumen and integrity, and the ability to know their limitations and seek counsel from the right professional to mitigate any knowledge gaps.
Finally, you should consider the time element of running a trust—some trusts, like their will-based counterparts, can be relatively simple to maintain. Others, such as Asset Protection Trusts, which require an independent trustee, can be more complex. With complexity, there’s a direct correlation with time spent, and not just on compliance paperwork. Trustees in these situations may expend many hours dealing with beneficiaries or getting the latest advice and reports from attorneys, accountants, bankers, and investment professionals. Again, with these considerations, it’s of the utmost importance that when you select a trustee, they have to understand all of the aspects of managing complex, trust-based estates and how each part fits into the larger strategy and solution set. As wealth grows, so does the potential of the estate to overwhelm family and friends. That’s why law firms and bank trust departments are necessities when estates reach a tipping point in complexity.
As you can see from this quick exploration, there are many considerations for choosing trustees. When you work with Howes Law, we help you walk through these considerations, as they relate to your unique estate planning needs. Collaboratively, we develop trusts designed to effectively reach your goals of asset preservation and transfer to the heirs and charities of your choosing, and a key part of this service is giving you the advice you need to choose your trustees wisely.