A question each of us will have to answer sooner or later in our lives is: Who will take over our financial affairs when we can no longer handle them? Establishing a trust is a great way to organize and designate assets for ourselves and others. With the creation of a trust, comes the appointment of a trustee to administer it. Though you may have a friend or relation suitable for the role of trustee, it’s also possible to choose a professional trustee. Read on to understand trust basics, the role of trustee, and the advantages and types of professional trustees.
Trusts and Professional Trustees Explained
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.
When a trust is established as part of care and estate planning, a fiduciary must be named to take responsibility for the assets placed in the trust, administering them in accordance with the provisions made in the trust agreement. This person is referred to as a trustee: “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.” It is typical, though not required, to designate a close relation or friend to the role of trustee. However, trends toward busy lives, complex finances, relocating, smaller families, and aging solo, may make the selection of a professional trustee the most sensible choice for many of us, as Absolute Trust Council explains:
Many people choose an adult child or other relative to serve as the successor Trustee of their trusts. However, there are often concerns about a relative’s ability to administer a trust….In situations where a client does not have a clear, solid choice for a successor trustee, they may consider a professional trustee….For many families, selecting a professional trustee may be the best choice to avoid conflicts among family members or to ensure that their trusts are efficiently administered.
While considering a professional trustee, it is helpful to know that there are two general categories: an individual, licensed, professional fiduciary, or a corporate trustee, sometimes also referred to as an institutional trustee. Some of the pros and cons of choosing a professional fiduciary include:
Licensed professional fiduciaries are efficient trustees because they are professional trustees and handle trust administrations as a daily part of their jobs. Compared to, for example, a child who has no formal education or experience in trust administration, a licensed professional fiduciary is much more efficient. In this way, licensed professional fiduciaries often save the trust money on legal fees because they are able to act independently during many phases of the trust administration. By contrast, a child trustee often requires significantly more assistance from an attorney throughout the administration of the trust. Licensed professional fiduciaries do charge fees for their services, but it is important to note that any trustee, even a relative, is entitled to reasonable compensation. Licensed professional fiduciaries often work alone or in small firms. Therefore, there may be a concern that the fiduciary selected to serve as a successor trustee is no longer working or alive at the time of the trust maker’s death.
A corporate, or institutional trustee, like a trust department at a bank or investment firm, can address longevity concerns, and may also make good sense in other circumstances:
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.
As you explore trustee options, keep in mind: “most corporate trustees will not take on a trust administration that does not meet a certain asset value threshold. Therefore, a corporate trustee may not be the best choice for a modest trust estate. Additionally, corporate trustees also have set fees for their services, often a set percentage of the total value of the trust assets.”
Understanding 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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