By Allen Giese, ChFC®, ChSNC®, CLU®
A wonderful tool to help you and your family achieve some of your most important financial goals is a revocable trust. Once you’ve decided that a revocable trust makes sense for you, it doesn’t take long to realize that one of the key components to the trust’s success is deciding who will be the trustee. And perhaps more importantly, who will be the successor trustee.
For most folks, the choice of initial trustee is obvious and easy. They’re creating their own trust, putting their own assets into it, which they’ve controlled their whole lives. So, rightly so, the natural first pick for the initial trustee is most often themselves—the creator and grantor of the trust.
But problems tend to arise when deciding who their successor will be to replace them when they are no longer able or gone.
Many of us look at this important role and evaluate who we know or who in our family is the person or persons we believe will take on this role well. Ironically, while making this decision, many of us have never been in this role ourselves. We really don’t have a good concept of what is involved in being a trustee.
After many years of experiencing trusts in action, I believe many folks end up short-changing the potential of their trust by limiting their successor trustee choices to family members or close friends. Selecting a family member as a sole successor trustee or even multiple family members as joint trustees can raise some serious questions, including:
What if the family trustee makes a mistake? Most likely, they won’t have any sort of fiduciary or trustee insurance coverage to take care of what has the potential to be a very expensive error. A mistake by an inexperienced trustee could cost thousands of dollars and reduce what the trust beneficiaries receive.
What if the family member trustee is subject to significant emotional stress when the family goes through difficult times? Even the tightest, most stable families can have discord and tensions that could affect the trustee’s performance.
Will the family member remain unbiased and impartial? This can be very hard for a family member going through different life stages or after the loss of a loved one.
What if the individual trustee doesn’t always have the time, energy, expertise, good health, or resources to fully administer a trust? They might be forced to hire expensive outside managers and administrators to handle things beyond their capability.
Who’s overseeing the family trustee? An individual trustee is not monitored by any independent or governmental entity. There’s no requirement to keep detailed records.
One viable solution to all those concerns is to use a corporate trustee who operates as a “directed trustee,” allowing the grantor or the beneficiaries to use their preferred financial advisor to handle the investment management of assets in the trust.
Using a directed trustee eliminates the conflict of interest that can exist when a trustee also manages the assets of the trust. This allows the financial advisory firm to add an additional layer of safeguards to trust accounts by overseeing invested assets and account activity.
If an objective of the trust is to have a family member maintain a role in trust management, appointing a corporate trustee to serve jointly and alongside the family member may be a good solution. This allows a means for family input, while the corporate co-trustee provides technical expertise.
No matter what your goals are, you want your trust to have the stability, expertise, unbiased support, and consistency your family deserves. Who you select as your successor trustee will have a lot to do with whether you achieve those objectives.