Understanding The Advantages Of A Trust: Issues In Selecting A Trustee

(Part 2 of 4)

Last month, we introduced various non-tax reasons for creating a trust. Taking advantage of the management expertise of the potential trustee was high atop the list of reasons. This month, we’ll set out the responsibilities of the trustee, the qualities most attractive in selecting a fiduciary and, last, but not least, the potential downfalls of selecting a family trustee and the potential benefit from using a professional trustee.

The role of a trustee is fiduciary in nature, meaning that the trustee must act at all times only for the exclusive benefit of all trust beneficiaries. If he or she does not, personal liability may result. The responsibilities of a trustee include:

1. Compliance with legal issues,
2. Properly investing trust assets,
3. Decision making (specifically in making distributions of income and principal in light of the needs of the beneficiaries) and
4. Accounting and record keeping duties

Some of the qualities to look for in selecting a trustee include:
 

1. Personality traits like integrity, honesty, confidentiality;
2. The requisite knowledge base and experience
3. necessary to be an effective manager and custodian;
4. Time availability to properly handle the various issues and complexities of a trust;
5. Administrative capabilities for record keeping responsibilities; and
6. Costs and fees charged to the trust.

Given the various fiduciary responsibilities, the question becomes who is best to serve in this fiduciary role? Family members are often thought of first to serve as trustee. Family members are familiar with the grantor, his or her intentions, the issues affecting the family and are often willing to serve at little to no cost. These advantages are often overcome by the pitfalls of a family member acting in a fiduciary role. The family member may lack the requisite expertise to serve in such a capacity. If the trustee reaches out to organizations who do have expertise (particularly in investing and accounting), the cost savings from selecting the family trustee may be negated. The family member may lack impartiality, especially when confronted with making discretionary decisions regarding distributions to family members who may be exerting pressure on the trustee. If the family member trustee is also a beneficiary, this can also exacerbate problems.

Selection of a Professional Trustee, such as a bank or trust company, may help alleviate some of these issues. Professional Trustees are impartial and are well versed in trust administration, investment management and taxation. As such, the costs incurred are often worth it to the Grantor and the Beneficiaries.

Next month, we’ll take a look at the probate process and why avoiding it with a trust may be a preferred route.

John Clausen is a third generation resident of Champaign and a former practicing attorney. He earned his law degree from Valparaiso University and his bachelor’s degree from the University of Illinois at Urbana-Champaign.
BankChampaign is a locally owned and managed financial institution that takes special pride in providing community banking with a personal touch.

You can contact John at jclausen@bankchampaign.com