Gregory S. DuPont
Select Trustees with Care
If you are thinking about establishing a trust, you need to select a trustee—someone who is charged with administering the trust according to your wishes. Perhaps you are considering naming a family member, or maybe you are wondering whether it would be wiser to designate your attorney or another trusted professional. Choosing a trustee is an important decision that requires great care and an analysis of your unique circumstances.
A trustee’s role is to comply with the terms of the trust and fulfill its objectives. In selecting a trustee, you may want to weigh many personal, family, asset management, and business concerns. For instance, an important consideration is the size and complexity of the trust. Corporate and professional trustees often possess the accounting, tax planning, and money management experience necessary to administer large, complicated trusts. On the other hand, a small trust may not warrant professional management.
When setting up a trust, it's also important to take both tax and non-tax considerations into account. It is possible to set up trusts in multiple states. Some states, like Delaware and Nevada, for example, have many income tax advantages for trusts.
Duration is another significant concern. A trustee’s responsibilities often span one or more generations. Corporate fiduciaries may have the advantage of perpetual life (although the individuals administering the trust may change over the years). This longevity may also allow them to more easily fulfill the record-keeping and reporting requirements of the supervising court, as well as Federal and state governments. If you have decided to appoint only individual trustees, you may want to consider designating co-trustees or successor trustees to address longevity concerns.
Does A Trustee Have To Live In The Same State?
Your chosen trustee does not have to live in the same state as you do. However, you will need to think about how convenient it will be for the person you choose to distribute the trust property after your death. Someone close by will probably have an easier job, especially with real estate transfers. But for transfers of property such as securities and bank accounts, it usually won't make much difference where the successor trustee lives.
Advantages of Professional Trustees
Corporate trustees have other advantages, as well. For instance, they may be more impartial when considering beneficiaries’ needs than are family members, who may face conflicts of interest. Also, corporate and professional trustees are held to a higher standard of professional conduct than nonprofessionals. Of course, professional service comes with a price. Many grantors of small trusts choose nonprofessional trustees to avoid high corporate fees.
Benefits of Family Members
When a personal touch is needed, family members or other nonprofessionals may offer special advantages as trustees. They generally have the sensitivity and flexibility required to support the special needs of a beneficiary. A family member or business associate may also be the preferred choice if you are leaving a business in trust, as corporate trustees generally do not run businesses.
Best of Both Worlds
Often, a combination of professional and non-professional trustees may work best. Corporate or professional trustees provide trust management expertise, while family members or other nonprofessionals respond to the changing needs and circumstances of beneficiaries.
Trusts are complex, varying by type and purpose, and are most likely to fulfill their objectives when responsibly administered. A trustee who is uninformed could mismanage a trust or take actions that could have serious tax consequences. When considering establishing a trust, qualified trust lawyers & legal consultants can help you make the most appropriate choice for your particular situation.