Trustee Me

People of all shapes and sizes are establishing trusts. Credit shelter trusts, marital trusts, generation skipping trusts, life insurance trusts, charitable remainder trusts and living trusts, are just a few examples of the types of trusts that are in use today. All of these trusts have at least one thing in common--you need a trustee for all of them. The trustee plays an absolutely critical role in whether the trust will be successful. The question is, who should be the trustee?

Before answering this question, let's take a quick look at trusts. A trust is a written agreement between the grantor (sometimes called a settlor or trustor) and the trustee. Under a trust agreement, the grantor transfers cash and/or assets to the trustee and gives the trustee instructions regarding the distribution of the income and principal of the trust to the beneficiaries. The trustee is a fiduciary who must follow the instructions of the grantor with respect to the investment of trust assets and all distributions.

There are three types of trustees; professional, semi-professional, and amateur. Professional trustees are usually corporations who are engaged in the business of acting as a trustee for hire. Bank trust departments and independent trust companies are the most common examples of professional trustees. Semi-professional trustees are typically professional advisers like attorneys and accountants. These individuals have some, but perhaps not all, of the technical knowledge of a full-time professional trustee. However, they may have a long-standing relationship with the grantor and his/her family.

Amateur trustees include any individual who acts as a trustee on a part-time, infrequent basis. Appointing yourself, your spouse, your child, your brother-in-law the doctor or most other family and non-family members typically means that you have appointed an amateur trustee. No one type of trustee is always right for every situation. Like any other aspect of financial planning, choosing a trustee involves weighing relative advantages and disadvantages and it should be done with the help of a lawyer.

Professional trustees do offer expertise in trust law, income taxes, investments and a variety of other topics that relate to trusts. Professional trustees also have staffs that can provide grantors and beneficiaries with various reporting services. There is very little risk of fraud when dealing with a corporate trustee and a corporate trustee won't die or become incapacitated. Professional trustees can also be expensive. In addition, the quality of service varies widely from institution to institution and even among branches of the same institution. Bank trust company investment performance has a reputation for being uninspiring. Bank trust departments are sometimes viewed as dumping grounds for new and mediocre employees.

Semi-professional and amateur trustees share many of the same advantages and disadvantages, although perhaps to a different degree. On the plus side, they may be more "in tune" with the grantor's wishes and the personal needs of beneficiaries. They may waive some or all of the fee to which they are entitled. There are, of course, negatives as well. Semi-professionals and amateurs are part-time trustees. They may lack the skills necessary in complex situations. They are also subject to the human frailties of injury, sickness, death and dishonesty. There is no one right answer for all situations. It pays to review your options carefully.

Of course, this brief article is no substitute for a careful consideration of all of the advantages and disadvantages of this matter in light of your unique personal circumstances. Before implementing any significant tax or financial planning strategy, contact us, your attorney or tax advisor as appropriate.