Why Appoint A Professional Trustee For Your Estate?
By Martin Hersh, Esq.
One of the most important decisions that must be made when creating a trust is which person to pick to be as trustee,
Trustees are tasked with the important duty of carrying out the terms of the trust. Being a trustee can be a complex task and often involves fulfilling a wide range of duties and responsibilities.
Almost anyone can serve as a trustee, and commonly, the first choice is often a spouse, a relative, or a good friend.
Yet, it’s usually not a simple pick-there’s often interpersonal relationship issues and questions whether a proposed trustee has the time, expertise and objectivity to ensure the terms of the trust are carried out.
So often a big question arises whether to appoint a professional trustee, one who has specific qualifications, perspective, judgment – and time – to ensure the trust is managed in the best possible manner.
There are many instances where objectivity, experience, and specific financial and legal knowledge are imperative to fulfill the terms of the trust.
A professional trustee provides professional oversight and avoids unhelpful biases that often result from family involvement in the trust.
In terms of costs, using a professional trustee is relatively inexpensive and often, they typically handle trust tax returns as part of their fee, which saves on accounting costs. All in all, given that the fees are usually range in the 1-2% annual amount of the trust, having a professional trustee is, in the right circumstance, a viable option.
Most of my clients do not initially like the prospect of a professional trustee managing trust assets for their loved ones because of a fear of loss of control over the trust and the cost of a professional trustee.
But the reality is that professional trustee’s fees are nominal when compared to the benefits provided, particularly where the distributions are objectively made solely upon guidelines provided to the trustee in the trust document.
To ensure control, these guidelines can be custom tailored to meet the objectives of the person creating the trust and of the needs of the trust beneficiary. There can be liberal guidelines, work incentive guidelines, guidelines based upon reaching certain academic milestones, religious beliefs, etc.
And having assets professionally managed and monitored in an expert fashion can give a beneficiary a great deal of comfort too. For the beneficiary that does not want to or cannot manage their own trust, a professional trustee can give them the peace of mind of knowing that their trust assets are being properly managed and, when needed, distributions can be made for their needs.
Where the beneficiary is not a spendthrift or does not have credit issues), the beneficiary can be given the ability to hire and fire trustees. In this fashion, if the professional trustee is not distributing or investing as the beneficiary’s would like, he or she can simply fire the professional trustee and appoint a new one.
In a prior article I mentioned that there can be major issues involving spendthrift children or beneficiaries. If a beneficiary is prone to overspending, has credit issues, or issues with spouses, having such beneficiary serve as a trustee of a trust created for their benefit may not be the best approach.
Bottom Line: The overspending/spendthrift beneficiary could, and probably would spend their inheritance too quickly. A beneficiary with credit issues may feel pressured to use assets in their trust to unnecessarily pay off creditors that they otherwise may not have to (since assets in most trusts have creditor protection built-in). Also, a beneficiary with a spendthrift or overbearing spouse can be pressured into using their own trust assets for that spouse.
I do not typically recommend having a sibling, relative or friend control the trust of spendthrift beneficiary since this, almost certainly, leads to discord and a deterioration of relationships.
If a beneficiary is relatively well-off and/or too busy to manage their own trust assets, a professional trustee is an excellent alternative too.
As with virtually all estate planning options, professional trustees, in the right circumstances, may be an appropriate choice in one’s estate plan.
Schedule a free consultation today to discuss whether a professional trustee is the right fit in your estate planning by calling my office at (845) 292-9345 or replying to this email..