For part 1 of this series of posts, please click here.
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:
•Generally more sophisticated in trust matters
•Generally more sophisticated in investments
•Generally less emotionally involved
•Potential “bad guy” for tough decisions
•May be more expensive
•Less natural interest in family matters
•Perhaps less flexible
•Connection/Mentoring Opportunities may be less
•Generally greater interest in beneficiaries
•Generally greater knowledge of trust creator’s values/intentions
•Highest interest in trust’s purposes
•May be more flexible
•May be less sophisticated/experienced
•Personal feelings/interests can impact decisions
•Position can impact familial relationships
- 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 independent trustee for access to trust benefits?
- Are there 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 are perceived financial or moral deficiencies in my beneficiaries that I don’t want to address head on?
- 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. But the topic requires deep questions that are not generally asked and therefore decision-making regarding trustees is less informed than it 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?
Posts in the Who Should Be Trustee? series are:
Who Should Be Trustee? Part One
Who Should Be Trustee? Part Two — Independent Trustees or Family Members?
Who Should Be Trustee? Part Three — Trustees for Minor Children
Who Should Be Trustee? Part Four — Trustees for Maturing Beneficiaries
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?
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!
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.