Consider Your Trustee Carefully: It Makes a DifferenceHaving a trust is just one important piece of the puzzle when planning for your financial legacy. Another piece: your trustee.
By MICHAEL S. FARRELL | SEI Private Wealth Management
You’ve made it to a place in your estate planning where it’s been determined that setting up a trust will help accomplish the many goals you have for your family.
You’ve done extensive research and worked with your adviser to select the type of trust that best suits your needs. Whether a trust for your grandchildren or a charitable trust, it’s time now to do what some may consider the easier part of the process — choosing your trustee.
Who do you “trust” to ensure your financial legacy lives on? Do you choose someone close to you? Someone you know respects your wishes, goals and family? Or do you choose someone without a personal connection to you or your family?
Keep in mind that choosing a trustee should be considered more of a business decision and less of a personal one. Although a trust can be perfectly designed for success, the trust’s goals may not be fully carried out when a trustee lacks knowledge, dedication or objectivity.
ADVERTISEMENTPersonal Connections and Emotional InvestmentsIt’s critical to understand the trustee's fiduciary responsibilities in order to make a wise choice when selecting someone to perform the duties.
Someone who is sensitive to your motivations and your beneficiaries’ well-being doesn’t necessarily possess all the essential qualities. When thinking about a trustee’s responsibilities, you should consider more than her understanding and respect for your financial goals and values.
A trustee must also play a keen part in investment management; tax planning and filing; making appropriate distributions to beneficiaries or for their benefit; and protecting the trust’s assets. On a day-to-day basis, the trustee must review beneficiaries' requests for funds and decide when to approve or deny distributions in accordance with the trust’s terms. Making this call can be difficult and stressful for someone with a personal connection to the beneficiary.
Imagine a situation where your loved one becomes less capable of handling his financial situation. Perhaps his “friends” are a negative influence. If the trustee is someone close to the beneficiary, she may want to maintain her relationship with him and be unable to tell him “no.” Relationship dynamics may play a bigger role in the individual trustee’s decisions, as opposed to what your intent was in setting up the trust.
Multiple Trustees: Too Much Tension or the Perfect Balance?It can be difficult to choose between a personal connection and someone with many years of experience managing trusts. What if you could have both?
A corporate trustee, such as a trust company or bank trust department, provides an objective, third-party opinion solely focused on the long-term goals that you set out for your trust. A corporate trustee can serve as either the sole trustee or co-trustee of your trust. Naming a professional trustee along with a trusted friend or family member may be your answer.
In the above scenario, in which a beneficiary becomes financially irresponsible, an effective corporate trustee can employ a disciplined and unbiased approach, while also receiving the co-trustee’s direct input and personal opinion. Not only can enlisting a corporate trustee's help potentially diminish unanticipated family tension, but it also enables a sharing of fiduciary responsibilities with the co-trustee. The co-trustees must act in collaborative consultation unless the trust allows one co-trustee to act alone. It also may allow the corporate trustee to make the necessary tough decisions in this situation without doing further harm to the relationship of the personal co-trustee and beneficiary.
It is vital that you take all things into consideration when establishing the “trust.” Choosing the right trustee(s) can help ensure that not only your financial legacy and intentions will be carried out, but it will be done so professionally and objectively for your heirs’ benefit.
Michael S. Farrell is Managing Director for SEI Private Wealth Management, a business unit of SEI that provides private wealth management solutions, serving high-net-worth individuals and families.
Jeff Sodoma, MPA, Esq. is a lawyer based in Virginia Beach, Virginia
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