Many individuals who establish trusts choose to name a close friend or relative as trustee. However, there are many situations where naming a corporate fiduciary is a far better alternative.
Acting as a trustee requires that the person have a good background in finance and tax. Failing that, the liability of making poor financial decisions may be overly burdensome for someone selected primarily because of their relationship with you. Depending on the size of the estate, performing as a trustee may require more time and energy than the person is able to devote to the required duties.
Here’s another problem, and one that we see often. It is unfair to the beneficiaries of the trust to pay a trustee for services rendered if the trustee is not qualified to perform the services, or does not have the necessary credentials to manage the trust. Even if friends or family members are professionals in finance, law or tax, they may not necessarily have the right knowledge of estate tax. They may be capable and trustworthy without being qualified. Paying them if they are not qualified may lead to bad feelings between family members and/or friends.
Along those lines, naming a friend or relative may subject the individual to highly charged and emotional disputes. If they are a friend, they may not appreciate being thrust into a family argument, and if they are a family member, they may bring their own emotional baggage that may complicate even the simplest of arrangements.
An alternative is the corporate fiduciary, which will take on a more business-like approach to the tasks and responsibilities of managing a trust without becoming emotionally involved in any disputes among the beneficiaries. Naming a corporate fiduciary also adds permanence to the choice and ensures that individuals who are skilled in money management, taxes, and conservation of trust principal will administer the trust.
Selecting a bank or independent trustee does not preclude family participation in the trust decisions. A friend or family member might be named as a co-trustee, with power to make or participate in decisions regarding discretionary distributions to beneficiaries.
The best estate plan in the world can be undermined by poor trustee selection. This is a decision to discuss with advisors, including the family estate attorney, CPA, financial advisor, and other trusted professionals.