Written by Steve Nyvik, BBA, MBA ,CIM, CFP, R.F.P.
Financial Planner and Portfolio Manager, Lycos Asset Management Inc.
You’ve gotten advice on estate planning and have found that, through establishing a Trust, you may be able to:
- save income taxes over the lifetime of your loved ones,
- save on inheritance or estate taxes,
- creditor protect assets, or
- protect your family members from themselves by limiting their ability to ‘spend away’ their inheritance.
What then becomes the challenge is choosing the right person or persons to act as Trustee. Here are some factors you might take into consideration in making your decision:
1. Family First
Your spouse and adult children are your family and most likely may be inheriting most or all of your assets. Unless there is a good reason, they should be managing their inheritance. To help them carry out their duties, they can hire whatever professionals needed to advise them. Such persons might include an estate lawyer, tax accountant, investment advisor, realtor or property manager, etc.
If your surviving spouse cannot manage even with the use of professionals, or having your spouse directly involved would adversely impact your estate planning objectives, then you might consider your spouse acting jointly with an adult child as co-trustees.
Should your spouse predecease you or die thereafter, then it may make sense for one competent adult child (especially if they live near you and the others don’t), who is honest and fair, to act as Trustee on behalf of one or more siblings. If not, then consider the children (when they become adults) to act jointly as co-Trustees. For siblings to act jointly, this may remove any perceived concern as to whether one child might attempt to act inappropriately to benefit themselves. Where siblings don’t get along, by being co-trustees, they will have to come together to make decisions. The danger of sibling co-trustees are that this could invite gridlock where nothing gets done, decisions made are sub-optimal, or decisions are not made in a timely manner.
2. Family Friend or Financial Professional
Going outside of the family requires you to rely on the goodwill of a family friend or paying a financial professional (like a business colleague, financial planner, investment advisor, or accountant in addition to your estate lawyer and bank trust officer) to act. Trouble is that these persons normally don’t do their job for free – and some, like bank Trustees can be incredibly expensive. Here you need to weigh the cost of the service to the value of having the Trust. If the benefits don’t outweigh the cost, then don’t have a Trust.
Where you need to use a family friend or financial professional, besides the cost, consider the following:
- Honesty and Integrity: If you don’t have trust in your Trustee to act honestly and according to your wishes, you have the wrong person.
- Competency, Wisdom and Sound Judgement: The person you choose as your Trustee should have good financial decision making skills. This person should spend time with you while you’re alive and of sound mine to understand you, your family situation and your wishes. Some of the duties your Trustee will handle include: paying your bills, make decisions on keeping, selling, disposing, gifting or distributing property you may own to beneficiaries, complete your final tax return and Trust Tax Returns, make tax elections, make a probate application to court, safeguard your assets, enter into contracts, deal with an estate lawyer, interpreting your wishes and possibly defending them, and make decisions on beneficiary short term versus long-term needs relative to Trust assets. Your Trustee should be empathetic to appreciate each beneficiary’s situation and be strong enough to make decisions in the face of conflicting beneficiary demands – even if one beneficiary is threatening to go to court.
- Organized: Your Trustee must be organized and keep proper records. Your Trustee needs to document all transactions using prescribed forms as well as document reasons for any decision that is made.
- Managing family relationships: With your death, hurtful childhood feelings or sibling rivalry may no longer remain contained. Your Trustee needs to be able to deal with these unleashed feelings and the conflict and suspicion that comes with it. Where children are suspicious of each other, it may not make sense to name one child as Trustee; instead name two, or all of your adult children as co-Trustees. If there is a potential for mistrust or for abuse of Trustee power, it may make better sense to name someone independent as Trustee and avoid adding fuel to the fire at a period when your loved ones are facing extreme emotional stress.
- Nearby: Ideally, at least one of your Trustees should live close to you, so he or she can perform duties efficiently and economically.
- Would they be willing to serve: The role of Trustee in some cases can last for several years and involve significant personal legal liability. Your Trustee can also be on the receiving end of anger and frustration of your beneficiaries that have been ‘held in-check’ all those years. Once a potential Trustee appreciates the difficulties and risks, he or she may not even want to accept the role. So you better ask them whether they would be willing to serve before appointing them. You should discuss with them how much you will pay. And you better have a plan as to how future successor Trustees will be selected.
- Age: Will they die before the need for the Trust comes to an end? Maybe you need to look for someone younger than you who can serve in that role for 20 or more years if the Trust might be needed for that length of time.
Where we fit in
For our clients, we are willing to support your Trustee or, if you have no spouse nor competent adult children, then we would be willing to help if you would like us to act as a Trustee. For the role of Executor or Trustee, we charge 1% which you’ll find to be very competitive and typically much less than a bank Trustee.
Our interest is to make sure that your goals are carried out in accordance to your wishes as we hope that not only will you be happy with our services, but also your children and future generations.