No one enjoys thinking about their own mortality, but we all want our families to be well-cared for after we’re gone. Many people set up trusts to help provide for loved ones and favorite causes after they pass away. A trust can help manage the wealth you wish to transfer and ensures the efficient distribution of assets—such as property or a sum of money—over a set period of time.
Yet a trust is only as strong as the trustee overseeing it. Choosing the right trustee is vital to ensuring that your beneficiaries enjoy the legacy you intend to leave behind. Rick Friedman, senior vice president and financial advisor at RBC Wealth Management, offers some important considerations.
The Role of a Trustee
A trustee is a person or financial institution that administers a trust for the benefit of named beneficiaries. Their duties can range widely and may include paying bills and taxes, overseeing property, and making sure investments are managed properly. Above all, says Friedman, a trustee “has a legal fiduciary duty to manage a trust on a beneficiary’s behalf,” by always acting in the beneficiary’s best interests, as outlined by the trust.
A trustee’s role is significant, especially when you consider trusts are commonly used when the trust is intended to provide for children or family members with special needs, who could require extensive assistance with overseeing their property, health, education and financial affairs. Trusts can also be used as a way to ensure that a spendthrift beneficiary is not given a single lump sum of money that could be mismanaged.
The Traits of a Trustee
The job of a trustee is neither easy nor quick. Overseeing a trust could mean years of active engagement with the estate’s beneficiaries. For this reason, Friedman insists, it is essential to put careful consideration into who you choose.
While a trustee does not need advanced legal or financial knowledge, he or she does need to be someone you trust implicitly. Proximity to the beneficiaries is another important consideration to ensure duties can be performed swiftly and without undue travel expense.
“Above all,” says Friedman, “you want someone who is of sound mind—and body,” so be sure the person you choose has the energy and mental acuity to take on all responsibilities.
The Trustee’s Commitment
Managing a trust is a heavy responsibility and requires a candid conversation with the potential trustee. A trustee needs to know up front what is being asked of him or her. What is the estimated time commitment? What are the daily, weekly and monthly duties? How long will this person be expected to administer the trust?
It’s not uncommon for a person—no matter how close a friend or family member—to balk when asked to be a trustee due to the potential time and energy administering a trust can demand.
“What you see as an honor that you are bestowing on someone, they may actually see as a headache,” Friedman notes. Depending on what you’re asking them to oversee, it could be a huge responsibility that may weigh heavily in their lives for a long time.
Friedman also emphasizes the importance of periodically reevaluating your chosen trustee because circumstances can change. Was it a friend you have grown apart from, or a parent who may now be too old to take everything on? If so, it may be time to consider a new trustee.
Hiring a Trust Company
Because of the potential difficulty in finding a qualified person who is willing to undertake administering a trust, some people hire a trust company to manage their estate.
“One of the best reasons to choose a trust company is that they are unemotional,” says Friedman. A professional company is completely detached from the situation and will not be swayed, for example, by family members tearfully asking for more money. “There are definitely fewer family feuds when trust companies are involved,” Friedman says.
Trust companies can also bring expertise and experience that a non-professional trustee can rarely match.
The potential downside to hiring a company, notes Friedman, is that trust companies charge a fee—which varies and is usually a percentage of the estate—whereas a friend or family trustee will often not charge for their services.
Flexible Trust Language
Finally, Friedman emphasizes the importance of having language in your will that allows you to assign new trustees. “You want to have some flexibility in your trust language so that you can alter trustees if something changes,” he says. Friedman uses the economic downturn of 2008 when some people lost faith in their banks and wanted to change financial institutions, as an example of the importance of being able to change trustees.
Which is why Friedman says it is important to be somewhat flexible.
“After all, you want a little leeway in your trust language because everything changes—except death, of course.”