Whether a trust is designed to guard against tax exposure, protect assets from a beneficiary’s spending habits or creditors, or safeguard an individual’s eligibility for public benefits, selecting a trustee is a critical decision. A trustee is responsible for opening the trust account or accounts, managing the assets or finding a qualified organization to do so, filing income tax returns, and distributing assets according to the instructions contained in the trust. The trustee must be knowledgeable about the trust’s parameters because if the trustee does not administer the trust correctly, the purpose of the trust may not be achieved. A trustee’s job continues throughout the existence of the trust, which also makes serving as trustee a long term commitment.
Because of the responsibility and level of commitment placed on trustees, many families consider appointing a corporate trustee, such as a trust company or bank, rather than an individual to manage the trust. Corporate trustees have varying strengths and benefits, and individuals should choose carefully.
Even a corporate trustee should have knowledge of the trust creator’s personal preferences for the trust. Remember, the trustee’s job generally extends for many years and involves multiple distributions of large sums over time. Families are advised to select a trustee that is especially responsive and easily accessible. A trustee that welcomes questions is positioned best to manage a beneficiary’s expectations. Sometimes it may be pertinent for the trustee to understand the trust creator’s religious beliefs to administer the trust most appropriately. In other cases, a trustee may have to manage assets for a widow who may need support in financial matters or in securing health care. In still other cases, a trustee may have to communicate with younger beneficiaries who are anxious to access an inheritance and may need help in tempering their spending.
Trustees must also be well versed in areas related to the purpose of the trust to ensure that the trust can achieve its goals. For example, a special needs trust is designed to enhance a beneficiary’s life but still preserve that individual’s eligibility for public benefits with strict financial eligibility requirements such as supplemental security income (SSI) or Medicaid. If a special needs trust was to be administered incorrectly, the beneficiary of the trust would potentially lose government benefits eligibility. Trustees that are familiar with special needs planning will also be able to effectively communicate with providers of services for individuals with special needs. This is especially important to ensure that the trust beneficiary has access to any community providers of services that would be essential or beneficial.
In addition to communicating with advisors and providers for special needs planning, trustees may also need to communicate with attorneys and accountants regarding the handling of a trust.
A third consideration is the expense involved in working with a corporate trustee. Whether there are fees to establish or terminate the trust vary among professional trustees. States establish their own rates for trustee fees based upon the amount of assets contained in the trust and the income generated by the trust. A trustee does not necessarily have to charge the maximum permitted by law. At least one trust company based in southern New Jersey does not take a commission on the income earned in the trust.
Those who wish to appoint a professional trustee may also wish to inquire as to whether the trustee or an affiliated company sells financial products. While trustees must always maintain a duty of loyalty to the trust, families may still wish to question whether the trustee is entirely impartial in recommending certain investments for the trust. Of course, the trustee must also have knowledge of investments or find competent investment advice. Generally trustees have a duty to diversify the assets and avoid risky investments.
Corporate trustees are subject to regulatory oversight and must comply with strict requirements. They also generally have greater expertise in financial, tax, preserving wealth, and government benefits planning than individual trustees. While they clearly have many advantages over individual trustees, families should still research several corporate trustee choices to find the trustee that best suits their needs and would best serve their families for many years to come.