Trusts can be powerful tools for safeguarding your loved ones and preserving wealth across generations. That’s why so many people incorporate them into their estate plans.
But doing so raises a critical question: Who can you rely on to manage and distribute your trust funds according to your wishes? With such high stakes at hand, this choice can be daunting.
This article explores the key duties of a trustee and important considerations to help you make the best decision for you and your family.
Important Duties of a Trustee
One of the most important roles of a trustee is acting as a fiduciary. This means taking on the legal responsibility for ensuring that your trust is administered according to its agreement and serves the best interests of your beneficiaries.
A trustee’s duties are multifaceted, including everything from recordkeeping, reporting, and communicating with beneficiaries to investment management, tax preparation, and protecting and distributing trust assets.
To help you better understand some of the different types of responsibilities involved, we’ve organized tasks into three broad categories:
Administrative
- Informing banks and other financial institutions of the grantor’s passing
- Keeping detailed and accurate records of all trust activities
- Issue any federal or state-required reporting
- Providing updates to beneficiaries on financial activity, assets, and liabilities within the trust, answering questions, and addressing concerns
- Collecting death benefits such as retirement plans and life insurance
- Seeking advice from legal, financial, and tax experts
Tax-Related
- Obtaining tax IDs and filing returns for the trust
- Implementing strategies to minimize the trust’s tax liability
- Scheduling K-1 forms to beneficiaries
- Paying property tasks for any trust-owned real estate
- Understanding the tax impacts of distributions to beneficiaries
Financial
- Managing trust asset allocation to balance growth and risk
- Deciding when to hold or sell trust assets
- Investing, diversifying, and protecting trust funds
- Creating and disseminating final accountings to heirs
- Making distributions to beneficiaries according to the trust agreement
Choosing the Right Trustee: Key Considerations
Now that you’re familiar with the responsibilities of a trustee, it’s time to think about essential qualities to look for your candidates.
Integrity is at the top of the list. You need to be able to rely on your trustee to make measured decisions and act in your family’s best interests. Financial and legal acumen, accountability, impartiality, and effective communication skills are also paramount. Ideally, the person you select will also have knowledge of trust law and prior experience overseeing trusts.
This is quite a lot to ask of one person. However, you can select an individual (typically a friend or family member), a corporate trustee, or a combination of to cover your bases. Let’s look at some of the pros and cons of each option.
Friends or Family Members
The benefit of choosing a person with whom you have a strong personal connection is that they are more likely to appreciate your values and wishes and have insight into the needs of your beneficiaries. There is also built-in trust. However, it may be challenging for someone close to you to act impartially. It’s also unlikely that a friend or family member will have prior knowledge or experience in trust administration. As such, the multiple responsibilities, significant time commitment, and potential legal liability (should a beneficiary choose to sue) could easily become too much of a burden.
Corporate Trustees
The obvious advantages of choosing a corporate trustee include professional expertise, comprehensive resources, and relevant experience. You will not have to worry about whether they understand fiduciary requirements, investment management, tax implications, or trust law. Because they do not share a close personal connection with you, it is easier for a corporate trustee to remain objective and accountable. However, they will not likely have the same personal insight into your intentions as someone close to you—and cost could also be a factor.
Co-trustees and Trust Protectors
If you’re looking for the best of both worlds, you may want to consider appointing a corporate and individual trustee. With co-trustees, both parties still have a fiduciary responsibility to you and the trust beneficiaries, but you can include stipulations that give one party preferential power over decision-making.
Another option is to hire a corporate trustee and name a close friend or family member as a trust protector to help ensure that your wishes are carried out as intended. Whether or not your trust protector has a fiduciary duty (and could be subject to legal risks) will depend on state law and the language in your trust documents, so it’s essential to clarify this with your estate planning attorney.
Trust in Our Dedicated Team
Selecting a qualified and capable trustee is essential to achieving peace of mind and ensuring that your loved ones, wealth, and legacy are fully protected.
EverPar can collaborate with your attorneys and tax specialists to incorporate trusts into your estate plan and provide objective advice to help you assess your candidates and choose the right trustee for you and your family.
EverPar Advisors LLC (“EverPar”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where EverPar and its representatives are properly licensed or exempt from licensure.
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status, or investment horizon. You should consult your attorney or tax advisor.