Published Friday, February 8, 2013 at: 7:00 AM EST
Many high-net-worth people rely on trusts to minimize taxes and keep wealth in the family. But who should serve as trustee? A survey by Spectrem Group shows many wealthy investors who create trusts designate themselves or a family member as the trustee. But are family members the best choice?
Trustees have many complex responsibilities. The primary obligation is to distribute assets and trust income according to the wishes of the grantor - the person who establishes the trust. But the job also involves keeping records, investing assets, filing tax returns, and resolving conflicts.
Among affluent investors, Spectrem reports, 41% serve as their own trustee, 40% name their spouse, 21% name another family member, and 18% name their child. Just 25% name a financial institution, while 24% name their attorney and 13% appoint their accountant. (The numbers add up to more than 100% because some grantors name more than one trustee, known as co-trustees.)
Many investors appoint family members because they believe they will serve the interests of the beneficiaries. Also, family members often are paid little or nothing for their service.
However, trust experts say family members often have problems trying to administer a trust. They may not understand legal and regulatory issues, and sometimes may grant distribution requests too freely, draining the assets.
An outside professional can provide the expertise needed, along with an objective viewpoint. Sometimes the best solution is to appoint a family member along with a trust expert as co-trustees. The professional ensures the trust is properly handled, while the family member may be in a better position to deal with family issues.
Here are four reasons to consider appointing a trust professional as trustee or co-trustee:
A corporate trustee will continue as administrator for the term of the trust—even if that covers multiple generations. Any family member appointed as trustee eventually will die or become unable to continue. Grantors usually appoint a back-up, but that person, too, won’t be able to serve indefinitely.
A corporate trustee is held to an even higher standard under state and federal regulations than regular trustees. All trustees must interpret all trust documents to serve the best interests of the beneficiaries. The trustee works for the grantor, not the beneficiaries, and is guided by the trust documents.
Trust specialists have the knowledge and experience required to comply with all legal and regulatory requirements.
A corporate trustee brings objectivity and ensures that any conflicts or questions are resolved in a legally appropriate manner. In conclusion: There are numerous options at your disposal, so obtain expert advice.
This article was written by a professional financial journalist for McCarthy Asset Management, Inc and is not intended as legal or investment advice.