Estate planning requires many decisions, not the least of which is whom to appoint as an agent to act under a health care surrogate and a durable power of attorney and whom to appoint as a personal representative and a trustee. How do you select these individuals?
Take your time to determine whom you want to act. You have many alternatives, such as family members, professional advisors, such as your CPA, attorney or financial advisor, corporate institutions and trust companies, all of whom will be competing for your business. I will address the selection of a trustee.
The duties of a trustee include administering the trust in accordance with its terms and with skill, prudence and diligence of a person already familiar with handling a trust, giving notices, furnishing information, communicating and accounting to beneficiaries, acting with loyalty, avoiding conflicts of interest, maintaining impartiality, investing assets, maintaining confidentiality and enforcing and defending claims. A trustee can employ agents, such as accountants, lawyers and investment advisors, to help with these matters but the trustee is ultimately liable for decisions.
In selecting a trustee you should consider the following qualities* (this list is not all inclusive).
Responsibility and reliability.
Experience as being a trustee or at least experience in handling similar types of matters, especially financial matters.
No conflicts of interest. Many clients make the mistake of trying to treat their children “equally” and naming them as joint fiduciaries or in birth order. While that may work in certain circumstances, children often have their own strengths, which may not involve financial “sense”. Further, you have to be very careful because, after your incompetence or death, sibling rivalries and unresolved issues (mom loved you more than me) will often surface which may wreak havoc on an estate plan.
Age of trustee and the length of the trust.
Amount of fees.
*Taken, in part, from ACTEC Journal, Volume 31, No 1, Summer 2005, What It Means to Be a Trustee: A Guide for Clients.
Rather than selecting an individual, you can select a corporate trustee or bank. However, a corporate trustee may not handle a small amount of trust assets and even if the corporate trustee may act, the fees may substantially reduce the assets available for the beneficiaries. However, if you want objectivity, a corporate trustee may be the best alternative. As corporate trustees are governed by state law and federal guidelines, a corporate trustee will more than likely be more conservative than family members and more objective as they do not have a prior relationship with the beneficiaries. Decisions made by a trust company or bank are often made by a trust committee composed of various officers in the trust company or bank.
Other alternatives are your advisors, such as your attorney or certified public accountant. Advisors can make great trustees, especially if the assets are too small for a corporate trustee. Advisors know you and your intent and wishes without being involved in sibling rivalry or disputes.
ADVICE: When making decisions on the selection of a fiduciary discuss with your advisors. They can offer unbiased and objective views on the individual or companies you select. Trusteeship is a very powerful position and the trustee controls your wealth after your death . You want to be sure that the right person or company carries out your wishes.
WORD OF THE WEEK: Basis Points (BPS) is a fancy way of saying a percentage and is now a common unit of measure for interest rates. The relationship between percentage changes and basis points can be summarized as follows: 1% change = 100 basis points, and 0.01% = 1 basis point. Thus, when a financial advisor says they are charging you100 basis points for investing your 401(k) account of $500,000, the charge is 1% or $5,000. If you are charged 225 basis points, the fee is 2.25%.
GENEROSITY IS A KEY TO HAPPINESS …REACH OUT AND HELP SOMEONE TODAY! 😎