Keep These Trustee Traits Front and Center

A critical but often overlooked aspect of estate planning is deciding who will serve as the trustee for your estate. This person will be responsible for managing all related financial, tax and administrative affairs, so you should devote careful thought and planning to the decision.

Your trustee will handle a wide range of estate-related duties, some of which can be complex and time-consuming. These typically include making sure assets are distributed as directed in your last will and testament, managing assets held in trust on behalf of beneficiaries, and paying any outstanding taxes and bills.

Individual vs. corporate

Your first decision in choosing a trustee is whether you’ll designate an individual or a corporate trustee. Many people reflexively choose an individual — such as a close friend, spouse or other family member — because they think someone who’s close to them will be best equipped for the responsibility. However, this isn’t always the case, especially with large, complicated estates.

Also, the trustee is responsible for ensuring that all estate planning documents, including your last will and testament, are executed objectively and without bias. The personal feelings of close friends and family members can sometimes make it hard for them to accomplish this.

If there isn’t a close friend or family member who you believe is capable of handling trustee duties faithfully and objectively, you could designate a corporate trustee instead. You’ll benefit from professional investment management and estate settlement experience while also minimizing the potential impact that family dynamics and emotions could play in the fulfillment of your wishes.

Your corporate trustee will be subject to strict fiduciary regulations that ensure decisions are made in the best interests of your estate, not any particular individual or beneficiary. By designating a corporate trustee, you can be assured that your estate plan will be executed objectively and unemotionally.

Services and fees

Many bank trust departments and trust companies provide corporate trustee services. In addition to handling estate settlement, they may offer other professional services such as investment, financial and tax advice. In addition, they can usually tap into a network of other professionals that can be helpful in the estate settlement process, such as CPAs, attorneys and insurance agents.

Of course, corporate trustees charge a fee for their services that typically ranges between 1% and 2.5% of the value of the estate’s assets annually, depending on the size of the estate. So, cost should be a main factor in deciding whether to designate an individual or a corporate trustee.

If yours is a small and relatively simple estate, and you have a close friend or family member who’s both equipped and willing to serve as trustee, this could be your best option. However, if your estate is large and complex, or you don’t have any good options for designating an individual trustee, you could be better off designating a corporate trustee.

There is a third “hybrid” option: You could designate both a corporate trustee and an individual who’d share estate settlement responsibilities and serve as co-trustees together. While there’s potential for this to lead to conflict, if you carefully allocate responsibilities it could be a way to ensure that you have the best of both worlds. For example, the corporate trustee could handle the more complicated administrative and investment duties while the individual trustee takes care of simpler routine tasks such as paying outstanding bills and taxes.

Pros and cons

Carefully weigh the pros and cons of designating an individual vs. a corporate trustee for your estate. Doing so will help ensure that your wishes are fulfilled while easing the burden on your loved ones during a difficult time.

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