Guest Post by: Bill Hardesty | Arboretum Wealth Management
Choosing a trustee is, perhaps, the most difficult decision you must make when completing an estate plan. Do you choose a family member or friend to be trustee? Why would you want a professional trustee? What should I look for in a trustee? What are the advantages of choosing a professional trustee?
Your trustee will hold great power. That power comes with a tremendous amount of responsibility. Here is a short list of things a trustee is responsible for: collecting all assets, managing taxes, investments and real estate, following ever-changing rules, regulations, and laws and is personally responsible for all trust assets, distributions, filings, and document compliance. The trustee must also take care of beneficiary needs, answer beneficiary questions and account to all involved. Leaving your care and your beneficiaries in the hands of someone not qualified to administer trusts can be detrimental. Time, experience, resources and oversite favor choosing a professional trustee to serve you and yours:
The work takes time. Your trustee must have the time to do a good job while burdened with so many complicated and time-consuming duties. The work takes attention to detail and adherence to deadlines. Non-professional trustees will have to “make time” to take care of trust matters and such important duties can become quite burdensome. The work of the trustee can and does consume significant trustee time and effort.
On the other hand, professional trustees work on trust matters daily. The tools to administer trusts efficiently are already in place and put to work for you and yours. Trust administration processes and procedures are well known to the professional and the professional has the time to do what is required of the position. Speedy or rushed decisions are detrimental to trust administration and should be avoided.
Lastly, professionals are always around. Family and friends can pass away; become incompetent themselves or simply move on. Relationships change over time. Professional trustees are not subject to such changes.
A trustee without experience must rely on a group of outside professionals to do the job correctly. The team approach works well, but can dramatically increase expenses to the trust assets. Trustees are required to hire professionals for duties outside of their experience, thus adding to administration expenses. Outside advisors often become the “surrogate trustee team” and they each charge accordingly. Experienced trustees do not need to heavily rely on outside aid, thus reducing expenses.
Tax elections and preparation, discretionary distributions and recordkeeping duties require specialized experience that most non-professionals lack. Mistakes in these areas can be quite expensive and time-consuming. Due dates and tax elections are routinely addressed by professional trustees while such issues may not be effectively managed by laypersons. Tax penalties for late filings, amendments to tax returns and additional tax representation fees can all result from inadequately managed trust duties.
It is not hard to appreciate the benefit of using an experienced professional to handle matters, considering the possible financial damage to beneficiaries. Only professional trustees are continually engaged in the regulatory, legal and procedural duties required of a trustee. Since your trustee choice can be subject to personal financial liability for mistakes and delays, it makes sense to name a professional trustee to manage risk as well.
The tools a trustee must utilize are many. Tax advice, legal representation, real estate, benefits, investments and other life-related matters must be managed. A professional trustee has the resources to cover every aspect required of administration. The recordkeeping system provided by professionals is unavailable to non-professionals. Professional trustees have online information systems that are always accessible to you and your beneficiaries. Simply put, non-professional trustees simply do not have the necessary technologies and professional network to efficiently and accurately manage your trust.
Most trusts are private. That privacy is often a cherished benefit of using a trust in your estate planning. That privacy does have a downside. If a non-professional is chosen as trustee, that trustee will not have anyone to oversee the administration. There will be no “check” on the trustee to make sure processes, procedures, laws, and other regulatory matters are adhered to. Only professional trustees are subject to regulatory scrutiny and audits. Oversight and control results in greater transparency and consistent trust administration.
It is easy to understand that estate planning is very personal. Choosing family or friends to be your trustee (who may take care of your when you are unable to handle your affairs) seems like a natural choice to make. “A pro won’t know me or my family!” is a common concern. Actually, the very fact that a professional trustee is not a family member or friend has benefits.
The third-party nature of the professional can be beneficial to trust administration. Third party trustees are not beholden to anyone and can help smooth over or prevent disagreements among family beneficiaries as a neutral. Often, a chosen family member or friend is placed under such stresses by beneficiaries that they cannot remain at arms-length from the situation. Many family fights begin by having one family member administer property for other family members. Add in possible delays and mistakes made by the family member trustee to the family dynamic and trouble brews.
Professionals are efficient in the way they work, and can result in fewer fees since they need not rely on many outside advisors. All trustees acting can, by law, receive fees for the work they perform. Often non-professional trustees call professional trustees and ask what the pro charges and have to add on the outside advisor fees as well. So, in the end, the fees paid to a professional, like in many other parts of life, is money well spent and a decision well-made. The time, experience, resources, and oversight of a professional simply cannot be replaced by choosing family or friends to such an important post.
Tiffany Locke 3/9/2017 10:33:27 pm
Finding a professional who has the time to do a good job and knows what they're doing is a good idea. A trust is very important and finding someone who can properly manage it could help keep it safe. I would imagine that meeting with different companies that offer trust management would help you find one you would be able to work with.
Reply Kevin O'Flaherty 3/10/2017 08:41:20 am
Very insightful, Tiffany. Thanks for commenting.