People of all shapes and sizes are establishing trusts. Credit shelter trust, marital trusts, generation skipping trusts, life insurance trusts, Medicaid asset protection trusts, charitable remainder trusts and revocable living trusts are just a few examples of the types of trusts that are in use today. All of these trusts have at least one thing in common—you need a trustee to manage them. Your trustee plays a critical role in whether your trust will be successful. The question is, who should be your trustee?
A trust is a written agreement between the grantor (sometime call a settler or trustor) and the trustee. Under a trust agreement, the grantor transfers cash and/or assets to the trustee and gives the trustee instructions regarding the distribution of the income and principal of the trust to the beneficiaries. The trustee is a fiduciary who must follow the instructions of the grantor with respect to the investment of trust assets and all distributions.
There are three types of trustees; professional, semi-professional, and amateur. Professional trustees are usually corporations who are engaged in the business of acting as a trustee for hire. Bank trust departments and independent trust companies are the most common examples of professional trustees. Semi-professional trustees are typically professional advisers like attorneys and accountants. These individuals have some, but perhaps not all, of the technical knowledge of a full-time professional trustee. However, they often have a long-standing relationship with the grantor and his/her family.
Amateur trustees include any individual who acts as a trustee on a part-time, infrequent basis. Appointing yourself, your spouse, your child, your brother-in-law-the-doctor or most other family and non-family members typically means that you have appointed an amateur trustee. No one type of trustee is right for every situation. Like any other aspect of estate planning, choosing a trustee involves weighing relative advantages and disadvantages and it should be done with the help of a trusted advisor.
Professional trustees do offer expertise in trust law, taxation, investments and a variety of other topics that relate to trusts. They also have staff that can provide grantors and beneficiaries with various reporting services. There is very little risk of fraud when dealing with a corporate trustee and a corporate trustee won’t die or become incapacitated. However, professional trustees may be more expensive than semi-professional or amateur trustees.
Semi-professional and amateur trustees share many of the same advantages and disadvantages, although perhaps to a different degree. On the plus side, they may be more “in tune” with the grantor’s wishes and the personal needs of beneficiaries, as they often have a longer standing personal relationship with the grantor. They may waive some, or all, of the fee to which they are entitled. There are, of course, negatives as well. Semi-professionals and amateurs are part-time trustees. They may lack the time and skills necessary to manage the trust assets. They are also subject to the human frailties of injury, sickness, death and dishonesty. There is not one right answer for all situations and thus, it pays to review your options carefully.
For more information on who you should consider as your trustee, please contact Davis & McCann, P. A. We are members of Wealth Counsel, a national consortium of Estate Planning Attorneys and the National Academy of Elder Law Attorneys (NAELA). We focus our practice on providing clients with the best legal advice on Estate Planning, Medicaid and Long-term Care Planning, Family Business/Small Business Succession Planning, Probate, Trust Administration, Real Estate Transactions, and related matters.
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