MAKING CENTS: How to pick a trustee
A trustee is generally a person or a company who oversees the governance and maintenance of a trust. For some trusts, you may be your own trustee while for others, you may need or want an independent trustee. For simplicity’s sake, realize that if you are your own trustee and have the power to reach in and take money or property at will, then your creditors may also have the same access.
For purposes of how to pick a trustee, we’ll focus on the trusts where either now or in the future an independent trustee is needed. The most common case where this topic arises is when trusts are being created for your adult children. In the old days, it was quite common to simply leave all of your assets to your children outright upon attaining some age beyond childhood, frequently starting around age 25.
But in today’s age of litigation, divorce and a low threshold for estate taxes (at least in Massachusetts) most families with greater than $1 million in total assets are candidates to create trusts.
The criteria that I find important when selecting a trustee may vary from what you think are good criteria. Most people that I talk to think they need someone savvy in money management, or with a financial background. While some financial awareness, or at least enough attention to detail as directed by professionals is helpful, having someone who understands your family values and your designated beneficiaries may be invaluable.
Your trustees can hire attorneys, accountants and asset managers to handle the professional part of the fiduciary responsibility thrust upon a trustee. In fact, many believe that having professionals serve the trustee and its beneficiaries is one of the best ways for a trustee to mitigate their fiduciary liability. You have got to pay attention to what is happening, sign the tax returns for the trust, and understand the terms of the trust and your responsibilities thereunder.
Conflicts may arise from the nontechnical, governance issues. These are issues such as managing trust distributions, handling beneficiary’s requests for additional funds and acting as close to how the grantor of the trust would act if they were still in control. In short, you’re there to ensure that the money is not blown and that solid, reasonable judgement can be made regarding the utilization of the trust assets.
A common use for accessing money in trust is for buying a home. Let’s say a 25-year-old beneficiary asks you for a distribution of $500,000 to buy a home. What would you say? What would the grantors have said? Even worse, suppose one such beneficiary is super successful at the ripe age of 25 and his twin brother, who sends in a similar request hasn’t finished school or ever held a meaningful job? These are the hard decisions a trustee must make and why your choice of trustees is frequently best when they are people you know well.
In cases where you simply have no such people in your life, a professional trustee may be wise. In such a situation, ascertain that the trust language gives some tight direction and maybe some wiggle room for your beneficiaries in the event that professional trustee is too expensive or not doing a great job.
John P. Napolitano CFP®, CPA is CEO of U.S. Wealth Management in Braintree, MA. Visit JohnPNapolitano on LinkedIn or uswealthnapolitano.com
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. John Napolitano is a registered principal with and securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through US Financial Advisors, a Registered Investment Advisor. US Financial Advisors and US Wealth Management are separate entities from LPL Financial. He can be reached at 781-849-9200.