June 1, 2022
More and more affluent families are turning to trust-based solutions for family wealth and inheritance management. However, a trust plan is only as good as its trustee. Have you been asked to serve as trustee, perhaps for a parent’s trust? Do you plan to ask your child to be your trustee? Although such a course of action may be a natural impulse, it may not be the best approach.
A family member has the advantage of personal understanding of the trust ben- eficiaries, and that is no small thing. Unfortunately, family members usually lack experience and ability in several other crucial areas.
The case for using a corporate fiduciary
Attorney Stuart Bear gave a fascinating presentation at the 2019 Heckerling Institute on Estate Planning titled “Why Can’t My Brother-in-law Bob be the Executor of My Estate?” He reviewed for the estate planners some of the important, practical considerations for choosing the best fiduciary to super- vise the implementation of an estate plan, beginning with this job description:
- Correspond with disgruntled beneficiaries
- Manage family drama
- Provide accounting to disgruntled beneficiaries
- Invest assets (don’t lose money or you will hear from disgruntled beneficiaries; and
- Receive phone calls from disgruntled beneficiaries inquiring when they will receive their inheritance (but remember it’s not about the money).
Some additional highlights from his talk are below.
Resist the first impulse
Very often someone’s first thought in selecting an executor or trustee is that either a spouse or adult child can handle the job. It’s vital to probe the family dynamics before moving ahead with such a decision. Sample questions might include:
- Do your children communicate regularly?
- How would one child react to his or her sibling receiving compensation for managing and distributing assets?
- Is any child likely to demand an inheritance immediately? Most people need to be brought up to speed on what fiduciary duties are, how much time and expertise they may require, and the value of having an impartial third party involved in decisions that may be not always be popular.
The benefit of naming an individual to serve as trustee chiefly is familiarity with the family values, family members, and family dynamics. There is a perception that an individual will be less costly, or may even waive fees for serving as trustee. Unfortunately, most individuals will need to hire experienced professionals to help in the discharge of their fiduciary duties, so the total cost of administration may actually be higher with an individual in charge.
Corporate fiduciaries (such as us) bring experience, expertise, professionalism, and objectivity to the jobs of trusteeship and estate settlement. Continuity of service is another advantage. Although there may be employee turnover, and the banking industry has experienced a series of acquisitions and mergers, a trust division doesn’t take vacations, get sick, or move out of state. Corporate fiduciaries are regulated and bonded.
Attorney Bear recommended interviewing a handful of candidates before deciding upon a corporate fiduciary. Sample questions include:
- What services will be performed?
- What services will not be performed?
- Are distribution requests handled by an individual, or by a committee?
- How long does it usually take to decide on a request for a discretionary distribution?
- At what asset level would the trustee terminate the trust and distribute the assets outright?
- Will specific language need to be included in the trust document?
For those who can’t make up their minds, it may be possible to have multiple fiduciaries, a sort of “best of both worlds.” However, some- one needs to be in charge, and that should be made plain in the estate plan. Don’t overlook the importance of planning for the selection of a successor trustee, perhaps through the appointment of a trust protector.
Attorney Bear offers to facilitate a family meeting for his estate planning clients, to be held in his office. To get everyone on the same page, he said, everyone needs to be in the same room. The meeting should include the nominated fiduciaries and the client’s children. There is sometimes a question about including the spouses of the children, but Bear prefers to have them attend as well. It provides for better control of the message, and is more likely to reduce future conflicts.
A family meeting will be especially important for a second marriage or blended family situation, if specific property will go to specific
beneficiaries, if assets will be distributed unequally, and if there will be a hierarchy in the nomination of fiduciaries. The goal is to avoid surprises and reduce future conflict after the death of a family member.
Bear opens the family meeting with a discussion of wills, trusts, and the respective roles and responsibilities of the personal representative, trustee, attorney-in-fact, and health care agent. He summarizes the planned distribution of assets, and then turns the meeting over to the client. The client then may explain the thinking behind the distribution plan and the choice of fiduciary or fiduciaries.
Bear concluded his presentation saying: “Educating clients on fiduciary selection and fiduciaries on their duties can go a long way to ensure the success of any given estate plan.”
The choice is yours
We invite you to learn more about our capabilities as trustee for your family. You may designate us to serve as sole trustee, or as cotrustee along with family members. Call on us to discuss the possibilities.