Who Should Be Trustee? Part 2 – Independent Trustees or Family Members?

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For part 1 of this series of posts, please see http://markshiller.com/?p=93.

Independent or Family/Beneficiaries as Trustees

Most advisors will agree on the pros and cons associated with naming independent trustees vs. placing family members or beneficiaries in the role of trustee.  Let’s start with a quick recap of some of the more commonly discuss pros and cons:

Advantages for Independent Trustees
•Generally more sophisticated in trust matters
•Generally more sophisticated in investments
•Objectivity
•Generally less emotionally involved
•Potential “bad guy” for tough decisions
Disadvantages for Independent Trustees
•May be more expensive
•Less natural interest in family matters
•Perhaps less flexible
•Connection/Mentoring Opportunities may be less

Advantages for Family/Beneficiaries
•Generally greater interest in beneficiaries
•Generally greater knowledge of trust creator’s values/intentions
•Highest interest in trust’s purposes
•May be more flexible
Disadvantages for Family/Beneficiaries
•May be less sophisticated/experienced
•Personal feelings/interests can impact decisions
•Position can impact familial relationships

Determining how to evaluate one option against the next will necessarily involve judgments on particular institutions or independent individuals against the potential individual trustees. That’s something that you will need to sort through yourself. But as you do, here are some guidance questions that can inform your decision:

  • How important is it to me that the trust be continued?
  • Is there a substantial risk of harm if my trust isn’t implemented as written?
  • What impact would there be on my beneficiaries if they needed to interact with an indpendent trustee for access to trust benefits?
  • Are their opportunities to increase my beneficiaries financial capabilities and competencies that might lead to a different decision?
  • What would my beneficiaries want?
  • If I am leaning towards appointing an independent trustee, is that because there perceived financial or moral deficiencies in my beneficiaries that I don’t have to address if I appoint an independent trustee?
  • If I need a “bad guy,” why do I need a “bad guy?”

I recognize that the above discussion may be frustrating or unsatisfying to some — after all, I pose many questions and offer no answers. That’s likely a fair criticism. That said, I believe it is a larger problem that deep enough questions are not asked and therefore decisions by individuals regarding the trustees they might select are less informed than they could and should be.

What do you think? Are there other questions you would add to the list? Any important advantages and disadvantages missed above?

Share.

About Author

Mark initiated this blog due to his passion in assisting and equipping families to manage their wealth and their families well.

4 Comments

  1. The impact on family relationships is the biggest issue for me personally, as my parents would like me to operate as trustee of my parents estate. As one of nine children, I don’t believe I could resolve issues to everyone’s liking if I had the wisdom of Solomon. An independent trustee affords me some objective distance. Further, an independent trustee could also bring experience and expertise I have not even considered. In many ways, it feels that an independent trustee that is committed and responsive to the family would be our best choice.

    • Nine different perspectives are often very difficult to reconcile. And an independent trustee can certainly help navigate those without, hopefully, any sense of favoritism or advantage, etc. Of course, that may only be relevant during a period of administration. Do you feel the same after a period of administration?

  2. Keith Whitaker on

    Nice summary, Mark. I see many families combine a family member co-trustee with an independent (professional or corporate) co-trustee, the former for the personal insight and attention and the latter for knowledge of administration and investing. My colleagues and I are also seeing some families with large trusts or private trust companies combine a family member or trusted friend as trust protector along with an institutional trustee that’s informed by an (advisory) distribution committee and an “office of the beneficiary” to keep the trustee informed about how best to help beneficiaries. Lots of possibilities!

    • Mark A. Shiller on

      Always appreciate your insight, Keith. The co-trustee arrangement is always interesting to me — in part because the structure can be replicated informally if a particular trustee’s role is more “service-specific” in nature. By that I mean the family/beneficiary trustee makes distribution decisions where the independent trustee takes care of investments or tax compliance, etc. I plan to explore this further in a later post, but I’m curious as to your (and others who are willing to share) take on the primary advantages to formalizing the relationships in fiduciary appointments as opposed to retention of the same provider in a non-fiduciary context. I’m not driving toward a particular position, although I’m not sure that the formal/informal alternatives get a lot of attention by estate planning attorneys.

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