In today’s post, we continue our discussion of the factors to consider when deciding whom to name as the trustee in a trust. In part 1, we talked about some of the reasons people ask relatives and friends to serve as trustees.
Those reasons can include a pre-existing relationship with and concern for the trust beneficiary. On a practical level, a family member or friend may serve without charging fees.
There can be negative repercussions to appointing a nonprofessional trustee. For example, a close relationship with the beneficiary or family history could cloud objectivity in decision making or create the potential for a conflict of interest.
To address concerns that a nonprofessional trustee may not have the business or investment experience needed to manage complex assets, the trustee could hire professionals to provide advice and services for smart asset management. On the other hand, these third-party professional expenses can add up.
Pros and cons of a professional trustee
Banks and trust companies offer professional-trustee services to manage trusts. Sometimes, a grantor (the person creating a trust) is hesitant to choose a professional trustee instead of a family member or friend to act as trustee. The grantor may worry that a professional trustee will be too detached from the family or might waste trust assets with high fees.
While these concerns are valid, it can be worth the professional fees and a personal and emotional relief to family members when a neutral third party has the professional responsibility to manage sometimes significant trust assets and make objective decisions on behalf of the trust beneficiary. As part of his or her fiduciary duties, a professional trustee must gather relevant information to understand the needs of the beneficiary and what factors matter in making decisions about trust distributions.
Corporate trustees have fiduciary experience and asset-management training that family members often do not. In addition to their professional duties, they are employees who are supervised and have colleagues with whom to consult, adding another layer of safety. Professional trustees are likely bonded and insured for mistakes or negligence that causes loss to the trust.
Some may have concern that a large trust company might be expensive and inaccessible when a beneficiary or other interested party needs information. Using a smaller, local bank or trust administrator can help to allay such concerns, suggests The Balance.