Choosing a Trustee
You’ve gotten advice on estate planning and have found that you may be able to save income taxes, inheritance or estate taxes, creditor protect assets, or protect your family members from themselves by limiting their ability to ‘spend away’ their inheritance. What then becomes the challenge is choosing the right person or persons to act as Trustee. Here are some factors you might take into consideration in making your decision:
- Family First
Your spouse and adult children are your family and most likely may be inheriting most or all of your assets. Unless there is a good reason otherwise, they should be managing their inheritance. To help them carry out their duties, they can hire whatever professionals are required to advise them – such persons might include an estate lawyer, tax accountant, investment advisor, realtor or property manager.
If your surviving spouse cannot manage even with the use of professionals, or having your spouse directly involved would adversely impact your estate planning objectives, then you might consider your spouse acting jointly with a child as co-trustees.
Should your spouse predecease you or die thereafter, then it may make sense for one competent child who is honest to act or for one or more siblings to act jointly. For siblings to act jointly, this may remove any perceived concern as to whether one child might attempt to act inappropriately to benefit themselves. Where siblings don’t get along, by being co-trustees, they will have to come together to make decisions. The danger of sibling co-trustees are that this could invite gridlock where nothing gets done, decisions made are sub-optimal, or decisions not made in a timely manner.
- Family Friend or Financial Professional
Going outside of the family requires you to rely on the goodwill of a family friend or paying a financial professional (like a business colleague, financial planner, investment advisor, or accountant in addition to your estate lawyer and bank trust officer) to act. Trouble is that these persons normally don’t do their job for free. Here you need to weigh the cost of the service to the value of having the Trust. If the benefits don’t outweigh the cost, then don’t have a Trust.
The main risks of selecting a family friend or even a financial professional include:
- Will such person will act honestly and in accordance to your wishes;
- Whether such person is competent in carrying out their duties and be able to make their decisions in the way you’d want them to made;
- Whether such person will be able to serve for their entire term and fulfill the entire mandate they have been elected to take on;
- Whether such person will create additional conflict or concern at a time when your loved ones may be faced with extreme emotional stress.
Where you need to use a family friend or financial professional, you might consider the following:
- Honesty and Integrity: If you don’t have trust in your Trustee to act honestly and according to your wishes, you have the wrong person.
- Competency, Wisdom and Sound Judgement: The person you choose as your Trustee should have good financial decision making skills. This person should spend the time with you while you are alive and of sound mine to understand you, your family situation and tour wishes.
Some of the duties your Trustee will handle include: paying your bills, make decisions on keeping, selling, disposing, gifting or distributing property you may own to beneficiaries, complete Trust Tax Returns, make tax elections, make a probate application to court, safeguard your assets, enter into contracts, deal with an estate lawyer, interpreting your wishes and possibly defending them, and make decisions on beneficiary short term versus long-term needs relative to Trust assets. Your Trustee should be empathetic to appreciate each beneficiary’s situation and be strong enough to make decisions in the face of conflicting beneficiary demands – even if one beneficiary is threatening to go to court.
Organized: Your Trustee must be organized and keep proper records. Your Trustee needs to document all transactions using prescribed forms as well as document reasons for any decision that is made.
Managing family relationships: With your death, hurtful childhood feelings or sibling rivalry may no longer remain contained. In such a case, it may not make sense to name one child as Trustee; instead name two, or all of your adult children as co-Trustees. If there is a potential for mistrust or for abuse of Trustee power, it may make better sense to name someone else as Trustee for the sake of avoiding harming family relationships.
Nearby: Ideally, at least one of your Trustees should live close to you, so he or she can perform duties efficiently and economically.
Would they be willing to serve: The role of Trustee in some cases can last for several years and involve significant personal legal liability. Your Trustee can also be on the receiving end of anger and frustration of your beneficiaries that have been ‘held in-check’ all those years. Once a potential Trustee appreciates the difficulties and risks, he or she may not even want to accept the role. So you better ask them whether they would be willing to serve before appointing them. And you better have a plan as to how future Trustees will be selected.
Where we fit in
For my clients, I am willing to support your Trustee or in acting as a Trustee. I make sure that you receive very good value for our cost which is generally 30% to 50% less than the cost charged by a bank trust officer.
My interest is to make sure that your goals are carried out in accordance with your wishes as I hope that not only will you be happy with my investment and financial planning services, but also your children and future generations.
Written by Steve Nyvik, BBA, MBA ,CIM, CFP, R.F.P.
Financial Planner and Portfolio Manager, Lycos Asset Management Inc.