When a trust is established as part of estate and care planning, a fiduciary must be named to carry out the purpose of the trust. This person is referred to as a trustee. It is typical, though not required, to designate a close relation or friend to the role of trustee. However, trends toward smaller families, longer lives, and aging solo mean that more of us may ultimately choose professional or institutional trustees.
Third Party Trustees Explained
Although wills remain useful estate planning tools, especially related to gifting assets to others when we die, they have some limitations: they do not become effective until the death of the testator (person creating the will), so they are not a useful way to plan for our own potential declines. Additionally, wills do not allow for the distribution of assets to beneficiaries over time or based on milestones, like age or educational attainment. When it comes to attending to these types of goals, trusts are a vital tool in estate planning. By establishing a trust, the grantor (person setting up the trust) can plan for their own needs as they age, as well as designate assets for distribution to loved ones, charitable organizations and even pets:
A trust allows one person, known as the trustee, to manage funds and assets for one or multiple beneficiaries. Trusts can be revocable or irrevocable.Revocable trusts allow the grantor – the person creating and funding the trust – to change it during their lifetime….With an irrevocable trust, the grantor cannot make modifications. Assets placed in this type of trust no longer belong to the grantor. Such trusts can therefore help someone qualify for government benefits, reduce their taxable estate, and transfer wealth. The value and utility of a trust will depend on your unique circumstances as well as the type of trust you use.
Of course, the ultimate success of a trust depends largely on the trustee designated to take responsibility for the assets placed in the trust: “A trustee is best defined as an individual or individuals who have been named to manage a trust’s assets and carry out the purpose of the trust after you die or are unable to physically do so on your own.” For many people, the question of who will be the trustee is somewhat of a no-brainer, with adult children or other close relatives topping the list. However, the question of trustee is becoming more difficult to answer, given many of today’s demographic trends. For example, families tend to be more spread out across the country or even globe, and even responsible adult children might find they are too busy for the responsibilities involved in serving as a trustee. As estate planning attorneys point out, an institutional trustee, like a trust department at a bank or investment firm, can make really good sense:
A trust department or investment firm can come in and assume the role of your trustee. They are a third party, and this is something that you will undoubtedly have to pay for. But it is their job to manage the trust per the rules and duties you originally set forth in the trust documents — and their services come in handy in situations when you do not have friends or family to assume that responsibility.A trust department or investment firm can do everything from keeping records and preparing tax returns to managing trust funds, disbursing checks, making required distributions to beneficiaries, and other lawful transactions.Naming a third party as your trustee may feel awkward…..But the goal is to do whatever is in the best interests of your estate and your family, and hiring an entity such as a trust department or investment firm will accomplish those goals quickly and efficiently.
Understanding The Trustee Role and Trustee Bonds
Trustees have fiduciary obligations and are held to exceptionally high legal standards, “the most important of which are the duties of loyalty and care, and the duty to act in accordance with the terms of the trust agreement.” Given the seriousness of the role, trustee bonds are often required. Essentially, a trustee bond is a specific type of fiduciary bond that protects the interests of the trust and its beneficiaries in accordance with applicable state law. As a leading national provider of many types of fiduciary bonds, Colonial Surety makes it easy and efficient to obtain trustee bonds: Just get a quote online, fill out the information, and enter a payment method. Then, simply print or e-file the bond from anywhere.
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