This is the fourth in a series of posts regarding the appointment of trustees. Links to the other posts are found below. Today we tackle what I think is the most challenging, and important, time-frame with respect to trusts and trustees — the time between a beneficiary’s minority and reaching his or her financial maturity. Instinctively, we all know that too much money, too soon can be problematic. Beneficiaries without the financial maturity to receive their inheritance (or sometimes even know about the nature and extent of their inheritance — see What Your Estate Planning Attorney Has Never Talked to You About for more information on that subject) are prone to making poorer decisions regarding career, education, friendships, choosing a spouse, lifestyle, and so on. So the management of a trust for a, we’ll say, young adult beneficiary is especially important. So what’s the best choice for a trustee for a young adult beneficiary? The three pools to choose from remain the same: friends and family; banks and trust companies; and professionals like attorneys and accountants. In evaluating these options, I would suggest the following as relevant questions to ask:
- Will the potential trustee be interested and/or capable in mentoring the beneficiary towards financial maturity?
- Will the potential trustee be respected by the beneficiary?
- Will the potential trustee be able to relate well to the beneficiary?
- Does the potential trustee have complementary values, as relevant to the relevant tasks, to your own?
- Will the potential trustee make distribution decisions giving due consideration to the personal impact on the beneficiary?
- Where the potential trustee may have deficiencies, are there others who can fill the gaps otherwise created by a single-trustee structure?
As to the last question, it is important to remember that trustee appointments do not have to be all or nothing appointments. Different aspects of a trustee’s job can be parceled out to more than one trustee or individual. For instance, you may have a fine selection for the administrative and investment aspects of the trustee role in mind that is unlikely to take on the important mentoring tasks that might be required. In that circumstance, an appointment of one party to serve as the back office and investment trustee and another to be appointed as a financial mentor or a trustee to exercise distribution discretion granted might be a much better approach. We’ll delve into the mixing and matching of trustee roles in greater depth later, but the point is that each aspect of the role should be evaluated independently for the betterment of the beneficiary’s experience and character. Financial mentoring is not often thought of as a trustee role — and to be fair, it may be asking more of a trustee than is always appropriate. I’ve found that providing for the appointment of a Financial Mentor in a trust, and designing and filling the role, can be a very rewarding experience for creators of trusts. If the trust is more testamentary in nature, the discussion may lead to additional energy from parents in mentoring their children towards financial maturity. If a current trust, bringing other resources and individuals with an interest in a beneficiary’s personal success can also lead to additional vibrancy in a beneficiary’s maturation process. I’ll acknowledge that multiple trustee structures may not be cost-effective in more modest situations. But other than that limiter, do your trustee appointments make sense when you consider all the roles a trustee and financial mentor might fill? Posts in the Who Should Be Trustee? series: