Increasingly, people are recognizing the value of establishing trusts as part of their estate plans. When it comes to designating a fiduciary to administer the trust, it is typical to turn to a close friend or relation. Estate law experts point out that while this is generally fine, sometimes a professional trustee makes the most sense.
Setting Up for Success
When working with an attorney to establish a trust, it’s important to put as much detail as possible into the trust agreement. This ensures clarity about the purpose of the trust, the terms on which disbursements are made, and of course the intended beneficiaries. Having a detailed trust agreement makes it easier to visualize the duties to be taken on by the fiduciary designated to oversee the trust. This person is referred to as a trustee and you can learn more about the general duties of a trustee right here. A trustee can be a friend, relation or professional. Once you have designated a trustee, be sure to spend time clarifying your intentions and reviewing related documents, accounts and contact information. As a fiduciary, the trustee has an obligation to faithfully carry out the terms of the trust agreement. Given this responsibility, it’s common for the trust agreement to require a trustee bond. As a leading national provider of all types of fiduciary bonds, Colonial Surety makes it easy and efficient to obtain a trustee bond. Just get a quote online, fill out the information, and enter a payment method. Print or e-file the bond from anywhere—even the law office.
Pointing out that family members and friends often make great trustees because they can deeply understand the wishes and circumstances of the grantor (person establishing the trust), Iowa Estate Plan observes that professional trustees are sometimes a good choice, especially if complexity is anticipated:
Most individuals don’t have experience on what is involved with being a trustee. Thus, they have to learn on the job and perhaps by trial and error. Unfortunately, that learning process is done at the expense of your assets and your beneficiaries. Having a family member or friend serve could lead to resentment if the family member does or does not take a fee. Being a trustee can be a lot of work and time intensive. For example, your brother may resent not getting paid for his services while overseeing trust assets for your children. Your kids may not appreciate the work that is performed and may be perceived as being ungrateful. On the flip side, your children may resent their uncle getting paid from “their” money if he does take a fee.
When choosing a trustee, keep in mind that family dynamics, even when the members generally get along well, can become unpredictable when death, grief and financial decisions enter the mix. As experts point out, a relative serving as trustee may “get caught up in the drama…You may want someone with a little more separation who will see your beneficiaries with a fresh set of eyes and treat them equally.” One option for securing a professional trustee is working with a “qualified bank that has expertise with trust administration. Professional trustees, like a bank, bring structure and oversight to the trust administration.” Iowa Estate Plan offers these helpful tips to consider related to the appointment of a professional trustee:
You will pay for this service, but in many instances, it will be money well spent. They will make the tough decisions and tell beneficiaries “no” when appropriate. It is often advantageous to use a bank (i) when the beneficiaries do not get along, (ii) when there is a problem beneficiary, (iii) your beneficiaries are busy with life; or (iv) when you are dealing with larger estates or difficult to manage assets….A drawback to a bank is that they may be perceived as too restrictive or inflexible. They also may be “tightfisted” in making distributions if it will reduce the assets under management that they are investing. These concerns can be addressed by giving a neutral third party, such as a trusted family member or advisor, the ability to remove and replace the trustee if necessary.
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