By its very nature, a trust must work best just when its creator cannot act.
Your trust may be carefully designed to address all the concerns you can identify. But no matter how well you and your financial and legal advisors have analyzed potential contingencies, the best-laid plans could be derailed by unforeseen circumstances. And perhaps nowhere can a trust be more vulnerable than in its trustees.
Trustees may be at the fulcrum on the levers of change, striking a balance in the future that you might find unfathomable today. Trustees are expected to keep the trust’s financial blueprint on track in the face of random market events. They are also expected to ensure that the trust continues to meet its objectives for beneficiaries, even those beneficiaries whose goals and needs might evolve unpredictably over time.
In addition, trustees themselves might be buffeted by the winds of fate. Individuals might someday choose to relocate or change their occupation. They might alter their lifestyles, retire, or otherwise become unable to fulfill the duties you have envisioned. Your attention to sound trustee selection principles and self-correcting design features now can help manage those future risks to your plans.
The role of trustee may at any given time require legal, tax, investment and administrative expertise, as well as the wisdom to invoke that expertise when needed. The ideal trustee should also be able to deliver that expertise loyally, decisively and impartially.
As the creator of the trust, you have the broadest possible discretion in selecting someone to act as trustee. You can opt for a personal confidant or relative in whom you have strong faith, such as a business associate, sibling or spouse. You can select a professional practitioner whose skills might be especially useful to your purposes, such as a lawyer or accountant. Or you can designate a bank or trust company to act as a corporate trustee.
Each option presents a unique balance of benefits and concerns.
Weighing the differences
A personal confidant or relative may already have a well-established relationship with your intended beneficiaries and a detailed knowledge of the unique circumstances in your bequest. That familiarity can provide the context needed to interpret your wishes in your absence most effectively.
It can also lay the groundwork for a strong long-term relationship between the trustee and the beneficiaries. However, someone chosen solely on the strength of personal relationships and intimate knowledge may lack the training or skills needed to act impartially in the face of duress or emotional entanglement.
What’s more, a friend or relative acting as a trustee might have a conflict of interest or be unable to devote sufficient time to the duties of trusteeship, and these potential deficiencies may not become readily apparent for some time.
A professional practitioner who has had significant involvement in your family’s affairs may offer many of the same advantages as a personal associate, such as personal relationships with beneficiaries and historical knowledge of unusual situations and special needs. They may also have the professional distance needed to remain dispassionate under difficult circumstances.
However, like a lay trustee, an individual professional’s tenure may be subject to the vicissitudes of his or her life and may ultimately be unavailable at some critical future juncture.
Advantages of a corporate trustee
A bank acting as a corporate trustee can provide a high level of impartiality and detachment as well as ready access to specialized technical, tax and legal expertise. A corporate trustee can also offer a high level of continuity and stability, since its ability to serve is generally not dependent upon any single individual.
However, a bank cannot maintain the same level of intimate knowledge as a family insider about your intentions or your beneficiaries’ needs.
You should keep in mind that different types of trustees may be subject to different rules, insurance and licensing requirements. Lawyers, for example, must meet the terms of their state bar association licenses when they act as trustees. Banks may be subject to regulatory audits and documentation procedures.
Also, professional trustees are often held to the highest fiduciary standards under the “prudent investor” principle. Simply put, that means that trust assets would have to be managed according to the best practices of the asset management profession, with special attention to appropriate risk management and diversification.
Trusts created in the Colonial era still function today, even as the laws governing trust and inheritance change almost daily. Whether your goal is ensuring your family’s fiscal stability or creating a permanent legacy, a properly crafted trust can be a powerful tool.
Costs of trustees
Each trust involves many unique considerations, so broad generalizations about annual fees and one-time costs may not be meaningful in relation to any specific trustee arrangement. The basic yearly trustee fee may be expressed as a percentage of the assets in the trust.
Each state has its own rules governing the maximum fee that a trustee can charge and the precise range of services that the fee might cover. In addition, many legal, accounting, custody and investment management fees may sometimes be billed separately, even if the individual or organization serving as trustee also performs those services.
Gary S. Williams, CFP, CRPC, AIF, is president of Williams Asset Management at 8850 Columbia 100 Parkway, Columbia, Md. He is an investment adviser representative with/and offers securities and advisory services through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 410-740-0220 or Gary@WilliamsAssetManagement.com. This communication is strictly intended for individuals residing in the states of: Arkansas, California, Colorado, Delaware, Florida, Kansas, Massachusetts, Maryland, Maine, Michigan, Missouri, North Carolina, New Jersey, New York, Ohio, Pennsylvania, Utah, Virginia, Wisconsin and West Virginia. No offers may be made or accepted from any resident outside these states due to various state requirements and registration requirements regarding investment products and services.