The Challenge of Selecting a Trustee Who Will Carry Out Your Legacy by Richard A. Berkowitz, JD, CPA
Naming a trustee to manage your assets and ensure your heirs are provided for in the same manner as you would have if you were alive is one of the most important decisions you will make when creating your estate plan. Unfortunately, it is also the one decision that fails to receive the attention and forethought it deserves, which often results in family discord and a mismanaged estate.
Your trustee is the person(s), business(es) and/or institution(s) you entrust with the responsibilities to maintain, protect, preserve and manage the assets you worked hard to earn during your lifetime and to carry out your wishes for distributing those assets following your passing. It is a role that requires a significant commitment of time and resources to fulfill the objectives of your estate plan, such as investing trust assets, managing distributions of property and/or trust fund principal and/or interest to your beneficiaries, maintaining accurate records and ensuring proper tax compliance. Equally important, the trustee must accept and be bound by a fiduciary duty to act in the best interests of the trust and its beneficiaries. Doing so requires trustees to not only recognize and accept the magnitude of their responsibilities, but to also gain a comprehensive understanding of your unique needs and goals. The only way to ensure that your family, friends and beneficiaries are treated in the same way that you would treat them, is to communicate with your selected trustee while you are alive and clearly spell out all of your intentions and desires concerning how you would like your trustee to carry out all of your post-mortem wishes.
Managing your assets and relationships during life can be challenging for you! Imagine how difficult it can be for a trustee who does not have the benefit of your guidance or your specific needs and wishes for what you want to happen after you pass away?
Following are some thoughts on how to help you make the best decision for you and your family.
Who do you trust?
Most people select an immediate family member as their trustee. Naming a spouse or child to control the purse strings of other family members can and does lead to years and years of family discord. Imagine, for example, the conflicts that can occur when a trustee tasked with preserving trust funds must deny a beneficiary sibling’s request for distributions. Or, consider the tension and resentment that can result when a grantor establishes a trust for the primary purpose of supporting a surviving second spouse and appoints a child from the first marriage as trustee.
When trustees are family members, you must have faith that they can put aside their personals interests and make decisions that are in the best interest of all trust beneficiaries and not merely themselves.
Who is up for the task?
While you may consider it an honor to select someone to serve as your trustee, the risks and responsibilities of that role are far greater than the flattery it conveys. In fact, careful attention should be paid to avoid selecting anyone – a family member, advisor or independent institutional professional – who may be power-hungry or have the potential to take advantage of their position of authority and control over trust assets.
Trustees must not only understand their fiduciary duties and commit the time to perform those obligations, they must also have the ability to exercise good judgment and apply best practices to meet the needs of beneficiaries. This does not mean your selection has to be a financial guru or investing genius; rather your pick should possess basic common sense, an ability to make rational, well-thought-out decisions and the self-awareness to know when it’s time to call in professionals to help them achieve the trust objectives without substantially diminishing the trust assets.
Who knows the real you?
One of the most difficult challenges people face when selecting a trustee is identifying a representative they can depend on to make the same decisions that they would make under similar circumstances. In other words, people want a trustee who knows and appreciates their personal beliefs and morals, understands their families’ unique dynamics and is able to put aside his or her personal opinions to do exactly as the grantors would want.
Try as you may to detail all of your wishes, wants and needs in your estate documents, the fact is that they rarely address every single possible situation that can occur in the future. Making it even more difficult for a trustee to carry out your wishes is the fact that wills and trusts are written in legal terms, and grantors rarely include in these documents their personal desires or emotional connections necessary to carry out their wishes.
Who is more likely to limit family conflict and exposure to litigation?
Too often, grantors spend a great deal of time trying to make their estate plans “fair and equal” to all of their beneficiaries. The problem is that fairness is in the eye of the beholder. A strategy that one child may consider to be reasonable and without bias may be perceived by other children as inequitable. It is important to remember that money, while not the source of all evil, can create tensions between those who control it and those who spend it, especially in matters involving a decedent’s trust.
When drafting a trust, grantors should focus on selecting trustees who can help to avoid or, at the least minimize, family conflicts and any risks of depleting trust funds in the court system. They should be prepared to address family conflicts and be able to keep a clear head in the face of hostility. This requires an individual with high emotional intelligence, business sense and financial acumen. If you have a family member who possesses these admirable qualities, your only remaining tasks are to request their assistance and, if accepted, spend time with them discussing your intentions, finances and relationship issues. If you do not have a family member with these qualities, you may consider naming as your trustee a family friend, advisor and/or professional trustee.
Family, Friends, Advisors and Professional Trustees
There are some advantages to naming a trustee that is independent of your family and has an unbiased view of your intentions and your family members’ unique needs. Whether grantors name their legal and/or financial advisors or they select an institutional trustee, such as a bank, to carry out the terms of their trusts, they will receive the benefits of professional management of trust assets, greater objectivity with regard to investments and distributions and less risk of family strife. However, it is important to note that institutional trustees, in particular, also come with fees, more formality and less flexibility when it comes to making distribution decisions that are beyond the specific contents of the trust document. It is difficult to pick the right trustee, and it is critical that you spend time with whomever you choose to help them become more familiar with your family circumstances and unique financial situation.
Find a Compromise
It is not uncommon to name two or more co-trustees to administer your trust and assign different responsibilities to each one to ensure that all of your goals and needs are met. For example, you may name as co-trustees a family member or close friend to represent your personal philosophy, a financial planning firm to manage investment and a separate bank or institutional trust company to administer the terms of the trust and make the tough decisions on sensitive issues, such as distributions to beneficiaries. This division of responsibilities creates a system of checks and balances to protect against any one individual or entity having too much power while also ensuring that the trust continues to reflect your personal feelings and beliefs and carry on the legacy you intended.
About the Author: Richard A. Berkowitz, JD, CPA, is founding and executive chairman of Berkowitz Pollack Brant Advisors + CPAs and Provenance Wealth Advisors (PWA), where he provides business consulting, growth strategies and succession-planning consulting to entrepreneurs and companies. He can be reached at the firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or via email at firstname.lastname@example.org.