Considering a corporate trustee? Don't let these 3 misconceptions cloud your judgment

One of the most important decisions in the estate-planning process is determining who will oversee your estate and the trusts you create during your lifetime and after your death.

Will you rely on a friend or family member, your attorney or accountant, or would your beneficiaries be better served by a corporate fiduciary such as a bank or trust company? As you weigh the pros and cons, here are three common misconceptions to keep in mind.

Common misconceptions about corporate trustees

Misconception #1. My family will lose control 

Appointing a fiduciary should bring peace of mind, not anxiety. We understand individuals worry about giving control of their family’s assets to a financial institution. As a result, we always strive to ensure our clients understand both our expertise and our vision of service to a family.

Serving as a fiduciary should be an “at-will” relationship. The trust document can provide a mechanism for removing and appointing trustees when circumstances warrant. It is also possible to serve as co-trustees or co-executors with family members and other trusted individuals. And in all cases, a corporate trustee should work to build strong relationships with families by respecting their wishes, avoiding bureaucratic processes and treating beneficiaries as partners in the administration process.

Misconception #2. Corporate trustees are expensive, and my son or daughter can serve for free

Serving as a fiduciary requires significant time, expertise and responsibility. It also carries personal liability. Beneficiaries can hold a fiduciary personally accountable if the fiduciary does not perform his or her duties properly. Because of the fiduciary’s workload and exposure to legal liabilities, in general, all trustees are entitled to receive “reasonable compensation” for their services. This applies whether the fiduciary is an individual or a financial institution. Fees may vary, depending on the size and complexity of an estate or trust, but the entitlement to compensation does not disappear when you choose an individual.

Even when an individual fiduciary is willing to waive his or her right to compensation, there are other “costs” to be considered. Even when compensation is waived, serving as trustee often requires significant personal and professional sacrifices.

There is also a variety of services an individual must outsource, at the expense of the estate or trust. An individual rarely has previous experience as a fiduciary or expertise in handling the investment, record-keeping and general administration responsibilities involved in an estate or trust administration. Individual trustees also typically lack access to the in-house attorneys, portfolio managers and trust specialists available through a corporate fiduciary.

Finally, there is the unfortunate scenario we have seen play out on numerous occasions: a family member intends to forgo compensation and dutifully fulfills her obligations as trustee without a fee, often for many years. But then circumstances change. The individual recognizes the level of sacrifice she’s made or encounters difficulties in her personal finances, a beneficiary starts questioning the trustee’s judgment or notifies the trustee that she is being replaced. Compensation can suddenly become a point of contention. In some cases, disputes escalate into litigation, straining relationships that have lasted a lifetime.

Misconception #3. My family member/friend has a good relationship with everyone and they will be able to keep the peace 

While serving as a trustee often involves personal relationships, it is ultimately a fiduciary responsibility. There are personal aspects to the job, but overseeing an estate or trust involves the management and distribution of property. In some circumstances, adding a business relationship to the personal relationships that exist among family members is not an issue. But in other circumstances it can be damaging.

Disputes among family members over trusts and estates are more common than many people realize. For example, if a trust’s investment portfolio does not appear to be properly allocated, a piece of real property is sold to a related party (such as a trustee’s friend, relative or business contact), or distributions do not seem fair and equitable, the only way for a beneficiary to protect his or her interests may be to hire an attorney and, in some cases, file suit.

In some cases, beneficiaries may suspect a trustee is not acting responsibly but are reluctant to speak up because they view the person as an authority figure or are afraid of damaging a personal relationship. An incompetent trustee may lead to a family’s assets being compromised for many years before the beneficiary realizes it or takes action. In these situations, personal relationships can make it harder to identify and address problems before significant damage occurs.

Making your decision

Ultimately, choosing a trustee is a highly personal decision that depends on the complexity of your estate, the needs of your beneficiaries and the qualities of the individuals or institutions under consideration. But it is important to consider the eventual experience of both the fiduciary and the beneficiaries.

Will the fiduciary be equipped to handle the work and assume responsibility for a variety of time-consuming administrative and record-keeping tasks? Will the relationship between the fiduciary and beneficiaries create efficiency or cause tension? 

When evaluating potential trustees, it is important to understand the full scope of the role, which may include: 

• Safeguarding and distributing assets
• Keeping records
• Managing investments
• Filing and paying taxes
• Maintaining and selling real estate
• Overseeing business interests
• Managing liquidity needs
• Gathering and preserving artwork, jewelry and other collectibles
• Resolving beneficiary disputes
• Defending and pursuing legal claims
• Paying expenses
• Communicating with CPAs, attorneys, insurance agents and other professionals
• Accounting to beneficiaries

Whether you choose an individual or a corporate fiduciary, look for these key qualities:

• Willingness
• Competence
• Objectivity
• Financial experience
• Discretion
• Patience and attention to detail
• Longevity
• Conflict resolution
• Open communication

 A trustee's goal is to help ensure your wishes are carried out, your legacy is preserved and your beneficiaries are protected. By carefully considering the responsibilities involved and selecting the right trustee, you can provide clarity, continuity and confidence for future generations.

Whatever approach you choose, the most important consideration is ensuring that the person or institution serving as trustee has the experience, objectivity and commitment necessary to fulfill your intentions over time.