Reference no: EM132650963
Problem - Who Should Be a Trustee?
Often, grantors choose a family member to be the trustee of the family savings, the children's education fund, or whatever other assets are placed into management by the trust. The relative chosen is often the most trusted but not always the one with the business skills. However, as the financial world has become more complex, with wild stock market fluctuations, increased fiduciary standards, and potential conflicts of interest, some are questioning the wisdom of using a family member as the trustee.
Using a trust company or other financial institution as a trustee usually results in more stable (if lower) investment returns, eliminating both the highs and the lows of the stock market cycle. Institutions also can bring other advantages.
They do not die, run away, become mentally or physically incapacitated, or otherwise unexpectedly become unqualified for the position.
They are not easily swayed by emotional appeals; nor do they react to family jealousies.
They are prohibited by law from acting under a conflict of interest, such as might exist between family members when the related trustee is also a trust beneficiary.
On the negative side, human trustees often waive or discount their fiduciary fee, but institutions do not. Especially for trusts with a small corpus, institutional trustees can be prohibitively expensive. And the trust company most often is oriented toward expanding its customer base rather than offering individual attention to existing clients.
How would you advise a client to address this delicate issue? Compromise solutions might be to:
Appoint co-trustees. Aunt Grace or Uncle Roberto can provide the personal touch and ensure that trust decisions recognize family needs, and the trust company maximizes investment returns and furnishes professional management.
Keep the family trustee but hire professionals at an hourly rate, to provide advice only when needed. This approach avoids the fees based on asset values that trust companies usually charge.