Estate planning is a sensitive subject for many families. Managing a large amount of assets and ensuring future generations are protected can present a variety of challenges. One of them is to select the right trustee.
In many cases, estate planning involves the use of trusts. In setting up a trust, a number of questions need to be considered and carefully answered, ranging from the purpose of the trust and what assets are going to be held by it, to whether it will be a domestic or an international trust and whether to use a family or corporate trustee.
Today, we are going to share some of our insights related to the last question, the choice of trustee. While we are not legal advisors, this topic routinely comes up in conversations with clients, so we decided to share some of our experiences and observations that might be helpful to consider when evaluating your choices.
In most cases, if it is a trust created by your own intention, you are free to appoint anyone as the trustee. Depending on your intentions and the purpose of the trust, you can choose a corporate or an individual trustee. In order to make the choice that’s right for you, you need to carefully consider and evaluate the issues and problems that are likely to arise when only the beneficiaries are there to monitor the trust and its distribution.
These issues will depend on possible family tensions, the nature of the trust assets, as well as the location and complexity of the assets. The needs may be different if the trust is meant to consolidate assets for inheritance only, or if it is meant to provide asset protection. It is also important to consider whether the assets are domestic, or if they are held internationally, in more complex structures.
It is also crucial to keep in mind that the role of a trustee is primarily an administrative job, comparable to the management of a small business. It requires very accurate record keeping of all transactions, regular accounting reports and strict adherence to critical deadlines. It also requires meticulous attention and compliance to regulatory requirements and careful monitoring of relevant changes and developments. Additionally, the trustee must represent the trust in all legal proceedings, should they arise.
An individual trustee could be a spouse, a child or other relative, or even a friend of the family. The main benefit of choosing your trustee from your circle of family and close friends is that he or she will likely have personal knowledge of your wishes and your original aims when setting up the trust and will also be aware of changing circumstances of the people that you originally wanted to benefit.
However, while family members and friends usually have good intentions, they may not always make the best trustees, as the burden they end up dealing with might prove much greater than originally anticipated. It might presently seem far-fetched, yet internal friction and conflicts are more likely to arise when a family member or friend is appointed as trustee. Other family members may feel the wrong person is in charge, they may not agree with the decisions made and might seek to influence the trustee, or unforeseen conflicts of interest may emerge down the road. Ultimately, the individual trustee may end up in a difficult position towards your loved ones.
When it comes to costs, appointing a family member or friend as the trustee tends to be less expensive. However, bear in mind that an individual trustee may lack the knowledge and experience needed to navigate an evolving legal system and to appropriately manage the trust over an extended period of time, which can result in additional expenses for the advice of outside experts.
On the other hand, the use of a corporate trustee could alleviate some of these issues. Generally, the corporate trustee will have a specialization in trust management. They will have the in-house experience and expertise required to manage all aspects of their role during the term of the trust, which can often be multi-generational, and will also have the resources to administer and navigate complex issues.
Furthermore, in all likelihood, they will have no previous relationship with your family members. As a result, corporate trustees can maintain a more objective relationship with your beneficiaries, carrying out your wishes and intentions as you had originally envisioned them. Finally, depending upon the jurisdiction of the corporate trustee, they are likely to be regulated and thus you may have further assurance that they will comply with the trust instructions and any related agreements.
The main disadvantage of a corporate trustee compared to an individual one can be the expenses. For this option to be efficient, you need to clearly understand their fee structure and negotiate terms that you feel provide the right balance between costs and benefits. Also, before choosing a corporate trustee, you must conduct in-depth research on the trust company and get a clear picture of how the organization works and whether or not you and your beneficiaries will be comfortable with the institution.
Overall, every situation is unique and there is no single right answer when it comes to trustee choice. Whether your trust is better served by a family or friend trustee or by a corporate trustee, or a mix of both, will depend on the goals you have set and on the particular circumstances of your beneficiaries.
Finally, regardless of whom you chose to serve as the trustee, always keep in mind that everyone’s circumstances can and do change. Thus, developing a close relationship with the chosen trustee and keeping them updated on important events and developments will help ensure the trust is able to support your beneficiaries in a time of need, while still being able to accomplish long-term goals.