If you’ve been thinking about estate planning for any amount of time, you’ve probably heard that you need a trustee. Keep reading to understand how to get started.
What Exactly is a Trustee and What Do They Do?
The main functions of a trustee are recordkeeping, trust administration, and investment management, according to Fidelity.
How to Choose Your Trustee – What to Look For
The name says it all: a trustee should be trustworthy. According to The Balance, the three questions you should ask about potential trustees are:
- Is the person capable, qualified, and willing to serve as trustee?
- Will naming this particular person as trustee hurt family relationships or cause problems down the line?
- Does the trustee offer continuity and protection against malfeasance?
According to Everplans, additional characteristics to look for include:
- Attention to detail
- An understanding of his or her duties, and a commitment to taking those duties seriously
- An understanding of finances and perhaps investing, accounting, or law
- Good communication skills
- Morals and values that you agree with
Finally, AARP recommends considering the age and health of your trustee. Make sure that there’s a good chance that person will be around to administer your estate. Even if your trustee is young and in excellent health, you’ll need to consider a backup.
The Pros and Cons of a Professional Trustee vs. a Family Member
It’s normal to consider loved ones as potential trustees. But it’s important to consider the pros and cons of choosing family or friends, as outlined by experts at Forbes.
- The Pros of Choosing a Loved One
- They are going to be most familiar with you and your family
- they will understand your family’s dynamics
- Family members often do not charge a trustee fee (although they are usually entitled to take a fee), professional trustees tend to be more expensive.
- A drawback to a professional trust company is that they may be hard to remove or become inflexible. They also may be tightfisted in making distributions if it will reduce the assets under management that they are investing. These concerns can be addressed by giving a neutral third party, such as a trusted family member or advisor, the ability to remove and replace the trustee, recommends Forbes.
- The Cons of Choosing a Loved One
- Your family may be better served with a professional trustee or trust company that has expertise with trust administration.
- If a family member does or does not take a fee, it could lead to resentment. Being a trustee can be a lot of work. If a family member agrees to work without a fee, they might end up resenting that later. On the other side, if the trustee does take a fee, your beneficiaries might resent this! Another disadvantage is that your family member may be too close to the family and may get caught up in the drama.
- Family members can sometimes get on a power trip and enjoy being in control of your beneficiary’s finances.
- You may want someone with a little more distance who will see your beneficiaries with a fresh set of eyes and treat them equally, says Forbes.
- Trust companies bring structure and oversight to the trust administration, including a trust department that oversees the administration. This service comes at a cost, but in many instances it will be money well spent. Professionals tend to make the tough decisions more easily and tell beneficiaries “no” when appropriate. Forbes recommends using a trust company when the beneficiaries do not get along, when there is a problem beneficiary, or when you are dealing with large sums of money.
Can’t Decide on a Trustee?
If you can’t decide on a trustee, consider co-trustees. Why not appoint a family member and a professional trust company? This will give you the benefit of both the professional expertise and emotional distance, while also having someone who really understands your family. Forbes also recommends building flexibility into the plan. You can structure your documents in such a way that gives others, such as your spouse, the ability to remove and replace the trustee. You also may be able to remove and replace the trustee during your lifetime. You can also let someone else decide if you are really at a loss. You can plan your estate so that your beneficiaries will choose the trustee after your death. Or, you can let your attorney choose the trustee down the road.
Whichever route you choose, don’t procrastinate on planning your estate. The Estate, Trust, and Elder Law Firm can help you make the hard decisions and leave the legacy you want for your loved ones. Contact our Okeechobee office at 863-261-8603 or online to get started!
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