Determining what happens to your property when you pass away can be a lengthy process and one that many people find quite morbid. But taking the time to prepare your estate while you’re still alive and kicking is a great way to make the process easier for your loved ones after you pass on.
One of the many questions that you’ll be faced with is who should you choose as a trustee? But if you’re like a lot of people then you might not even know what a trustee is before you start looking into preparing your estate. To understand who you should choose as a trustee it is important to first understand what a trustee does and is responsible for.
What is a Trustee?
A trustee is a person, or an organization like a firm, which holds onto and administers a person’s property or assets. They are called trustees because they are trusted to make decisions on the owner of the assets’ behalf, the trust coming from the assumption that the decisions they make will be in the best interest of the trust beneficiaries.
A trust is a relationship in which one person owns property or assets while another person holds the title to those properties or assets. The trust itself is an agreement between the two parties, the trustee and the beneficiary of the trust. The trustee is expected to act in such a manner as to ensure the wishes of the beneficiary are met.
There are many reasons that somebody may decide to create a trust but among the most common is to ensure that inheritance moves along easier. A trust can continue after the death of the beneficiary and often it is much faster to transfer ownership through a trust than it would be going through the usual inheritance process.
What Factors Should I Consider when Choosing a Trustee?
There are many different factors which you should consider when deciding on who would make for the best trustee. Being a trustee can be quite time consuming, as it is important to have up-to-date records and a sizable knowledge of the various financial and legal matters associated with the trust.
Among the most important factors to consider are:
- Cost: This is a factor that people tend to underestimate. They think that if they get their friend to be a trustee for them instead of a professional that they can save money. But a trustee without the support that a professional has is going to need to hire others, such as attorneys, custodians or CPAs, in order to manage different duties related to the trust. The cost of hiring these additional professionals can quickly grow much larger than the fee that a professional institution would charge. Also keep in mind that there are tax costs associated with being a trustee and there may be additional costs depending on the state’s trust laws.
- Decision Making Skills: Trustees are responsible for making the best decisions possible on behalf of the beneficiary. This often means that there are difficult decisions that must be made. An all-too-common example is protecting the trust from substance-induced ideas that the beneficiary may have. It is important that the trustee make decisions on what is best for the trust and not necessarily just based on what the beneficiary wants at any given time.
- Recordkeeping: An important part of a trust is being able to trust the trustee looking after it and the best way to ensure this level of trust is through excellent recordkeeping. Depending on what the trust covers there can be a huge range of paperwork such as tax returns and regular statements, statements of gains and losses, income reports, income tax liability and a whole lot more. Good recordkeeping will keep your trust in your trustee high, as well as make everything much easier should paperwork need to be referenced.
- Safeguarding: There is a risk that a trust that is administered by a single trustee could easily be mismanaged. Often a trust is left in the hands of the trustee and there is no safety net to protect against mismanagement. Safeguarding against this mismanagement can be hard to do, though it is much easier when a trust is managed by corporate trustees which are reviewed by outsider auditors or employees of governmental regulatory agencies.
- Acceptance of Liability: A good trustee will accept that they are liable to the trust should it fail to conduct itself in such a manner as to stay in good legal standing. Likewise, they must accept that they are also liable for the decisions that they make and therefore decisions which result in poor investments, mishandling of assets or conflicts of issue and other similar situations.
- Consistency of Service: A trustee should be consistent in their service and get back to the beneficiaries within a reasonable time. It isn’t always possible to respond to somebody’s requests immediately but there should never be long waiting periods for simple requests. There is often little that can be done if a trustee stops responding and this can be quite frustrating.
What are the Pros and Cons of Choosing a Family Member or Friend as a Trustee?
While you may trust your friends and family, it isn’t always a great idea to appoint a friend or family member as a trustee. One of the big issues that can occur when this happens is that the individual appointed proves to have more trouble managing the trust than was originally intended. This isn’t necessarily a sign of their incompetence but more a sign that they bit off more than they can chew.
There is quite often much less that can be done to protect a trust from an individual trustee than there is when an organization is chosen to act as the trustee. Individuals don’t have the same level of oversight that an organization does, nor do they have access to as many resources (such as professionals for the various parts of managing a trust). This can make appointing a friend or family member far more expensive and far more difficult than it originally sounds on paper.
What Should I Do When Setting Up a Trust?
If you are looking to set up a trust then you should first consult with an experienced attorney that knows the various challenges you’ll be faced with. A good attorney will also understand the pros and cons of the different options available to you when it comes to choosing a trustee. We here at Oren Ross & Associates are more than happy to help you get your trust set up and to help you pick the right trustee. Give us a call at (678) 250-4281 or (404) 436-1752 to see how we can help.