Help wanted: Seeking competent and committed trustee

A trustee has the authority to oversee and administer a trust’s assets according to your wishes. So selecting a competent trustee who will act in your — and your beneficiaries’ — best interest is essential.

Trustee responsibilities

Before you select a trustee, it’s important to consider the range of duties associated with managing a trust, including:

• Managing all assets, including securities and business and real estate interests,

• Maintaining detailed records and preparing transaction statements,

• Handling collections, distributions and payments,

• Preparing and filing all tax returns,

• Communicating with and responding to all inquiries from beneficiaries,

• Advancing trust principal or providing care for a beneficiary as permitted by the trust, and

• Settling the trust, when applicable.

Select a trustee who’s not only reliable and trustworthy, but also willing and committed to serving for the life of the trust. 

Determine the best fit

The two types of trustees are:

Individual trustee. This trustee may be a family member or close friend, a business advisor, an attorney or another professional. A family member or friend may seem like the natural choice because of the trust, common bond and likelihood that he or she understands your wishes for your family’s future. It’s also likely that he or she will charge little or nothing in trustee fees.

But keep in mind that, ideally, a trustee should have financial knowledge, be familiar with taxes and accounting, and have good business sense.So it’s essential that individual trustees without professional expertise in managing trusts consult with accountants, attorneys and investment advisors to help them get the job done effectively. 

Corporate trustee. This trustee typically is a financial institution, a bank trust department or a trust company. A corporate trustee specializes in managing estates and trusts and generally is free of conflicts of interest, allowing it to carry out its duties impartially.

A corporate trustee also has direct access to investment advisors, tax planners and other financial experts. Most institutional trustees charge fees based on a percentage of the trust’s assets. For long-term trusts, an institutional trustee can be beneficial because you don’t have to worry about the trust outliving the trustee.

In some cases, you can create a hybrid trustee by appointing an institution and an individual as co-trustees. The institution provides the professional experience and skills needed to effectively oversee the trust assets, while the individual is someone you can trust to act in your family’s best interests.

Outline responsibilities

After choosing a trustee, it’s important to determine the amount of control that he or she will have over the trust assets and distributions to beneficiaries. Consider giving your beneficiaries the power to remove an institutional trustee and replace it with another that’s a better fit as needs change or evolve. This provides an extra layer of protection from a trustee charging exorbitant fees or mismanaging the trust.

Outline what standards the trustee should use to determine when to make distributions to beneficiaries and in what amounts. The standards of providing for health care, education, maintenance and support often allow a trustee substantial latitude to determine what is appropriate while still keeping the trust assets out of the beneficiary’s estate.

In addition, make your trustee aware of the liabilities involved. For example, the trustee may be held personally liable in instances of poor investment decisions, not exercising discretion or inappropriate allocation of assets.

Choose carefully

Whether you choose an individual trustee, institutional trustee or both, your trustee(s) will be responsible for the financial well being of your beneficiaries. Careful thought and selection today can help ensure that your trust estate is managed with skill and care. •