Everyone should have an estate plan to protect the people they love and ensure that their possessions and assets accumulated over the course of a lifetime make their way to the people or charities of their choice.
Wealthy families face certain challenges when it comes to planning to pass on their assets to the next generation or to their grandchildren. A common concern is how to leave their heirs enough money so that they will be comfortable and have more choices in what they do with their lives, without giving them so much that the heirs become lazy and lack purpose.
BizWest‘s recent article, “To Trustee or not to Trustee,” says that many families of wealth choose to leave some, or all, of their wealth to future generations in trust. Trusts can be created in many ways and can specify exactly how and when the assets are to be passed to the beneficiaries. If you go with a trust, you’ll need to select a trustee. A trustee is a person, board or corporation that you assign with the task of overseeing the administration of your trust after you pass away. They’re tasked with making decisions about distributions to beneficiaries and ensuring they meet the directions defined in your trust. It can be a challenging job, so it is crucial to select the right trustee to carry out your wishes.
Opting for a family member or friend to serve as your trustee is common, because the relationship is personal, and they may be well-suited to understand the needs of the beneficiaries. However, most individual trustees don’t have the experience, time or financial or business background to manage the tax and administrative duties associated with a modern trust. It can also change the personal relationship between the individual trustee and the beneficiary.
If you go with a corporate trustee, like a bank, it can help you sidestep pitfalls often associated with an individual trustee. That’s because corporate trustees have expertise that individual trustees often don’t possess. A corporate trustee must also comply with internal audits and is scrutinized by both federal and state regulatory agencies. That ensures protection of the trust beneficiaries.
For some, using an individual trustee and a corporate trustee may be a good solution. Acting in concert, the individual trustee can bring the knowledge of the personal relationships, and the corporate trustee can apply the safeguards needed for making sound investment and administrative decisions.
Regardless of the direction you take, here are three thoughts which you should consider when evaluating which trustee is right for you and your family:
- Trustees must be diplomatic. A trustee must work with beneficiaries of vastly different character and levels of sophistication including children, grandchildren, friends, and other beneficiaries who all have different backgrounds, expectations and goals. An individual trustee must weigh the needs of the individual trust beneficiaries versus the terms of the trust. It is critical for the trustee to recognize the differences between beneficiaries and administer the trust in a way that both supports their needs and satisfies the intent of the trust.
- Siblings will always fight. One sibling may have a lifelong belief that “Mom always liked you best.” It’s important to explain to your trustee and your beneficiaries what will occur when you’re gone, before you’re actually gone. Don’t neglect to explain the family dynamic to the trustee(s). This can make a huge difference in preserving family harmony. It may seem uncomfortable, but it’s a gift to your family that’s far more valuable than money.
- What you can expect. Working with a beneficiary who depends substantially on trust distributions for support can be a challenge for any trustee. A trustee has to be prepared to be the “bad guy”, when beneficiary behavior runs up against prudent trust administration. Someone has to be the one to say no, and often that is the job of the trustee.
Your estate planning attorney will be able to assist you with determining which type of trustee will be best for your family, as well as to ascertain which type of trust is most suitable for your situation.
Reference: BizWest (November 27, 2017) “To Trustee or not to Trustee”