Who Should Be Your Trustee

The biggest decision to make in designating a trustee is whether to use a family member or a professional. Most, though not all, of the following discussion applies primarily to trusts other than living trusts; those are discussed separately at the end of this chapter.

Family members as trustees--pros and cons

Many people choose family members to serve as trustees. They don’t charge a fee, and they generally have a personal stake in the trust’s success. If the family member is competent to handle the financial matters involved, has the time and interest to do so, and if you’re not afraid of family conflicts if one relative is named trustee, using a family member can be a good move for a small to medium sized trust. If you do make a relative a trustee, be sure to consider who the successor will be in the event of death, incapacity, divorce or other family strife.

Here’s the downside to choosing family members.

• Lack of expertise. Relatives often lack the financial acumen of a professional trust officer, and so must often hire professional help.

• Mortality. Trusts can last for many years. Human trustees die. Banks don’t and if they merge, the new company automatically will succeed to its trust operations.

• Family conflicts. Depending on their relationship with the beneficiary, family trustees may have problems with what the beneficiary wants and what’s best for him or her. Sibling rivalries may also complicate arrangements in which one brother or sister serves as trustee for others. A professional manager doesn’t face such pressures.

Institutional Trustees--Pros and Cons

A good rule of thumb: if the trust assets amount to more than a few hundred thousand dollars or involve any complicated problems, you should at least explore the option of using a professional trustee—a bank, trust company, or lawyer.

Banks and trust companies are permanent institutions that can manage your trust for decades. They also have professional knowledge of and experience with investment options. They’re objective and regulated by law. If you question the honesty or reliability of friends or family members, a bank is the usual preference. It can also handle the investments, tax preparation, management, and accounting. Because they’re immortal (in a legal sense), institutions are usually designated the ultimate successor trustee after the first one dies.

The disadvantages?

• Cost. If you do use a bank or trust company to manage the assets, expect to pay a fee for those services. These institutions sometimes have a minimum fee that makes them costly for a small trust. Ask your trust company for its schedule of fees or discuss it with a trust officer. Find out what services are included and those for which additional fees are charged, including a termination fee. Fees are deductible for income tax purposes, to the extent the income is taxable to the trust or beneficiaries.


• Conservatism. Bank investments are generally conservative, with all the advantages and disadvantages that implies. While you, the trust creator, can program the kind of investment strategy you want the professional trustee to follow, that can cause problems because of changed circumstances after your death. For example, an investment in the company that pioneered the brush-and-fluid system for cleaning LP records would have looked like a great investment twenty years ago; the advent of the compact disk changed all that.


• Impersonality. While a bank probably won’t die, that doesn’t mean your beneficiaries will always be dealing with the same person; personnel move around, or move on. As depositors in many banks have learned, the bank itself can change hands. And your beneficiaries will want someone who’s willing and able to listen to and discuss their needs and questions; impersonal institutions are sometimes weak in these interpersonal areas. On the other hand, when squabbling relatives are involved, impersonality can be a boon.

If you do choose an institutional trustee, make sure you and your beneficiaries are comfortable with the people they’ll be dealing with.

The Best of Both Worlds?

An increasingly popular middle course between naming an institutional trustee and naming a family member is choosing a relative as trustee—and hiring a bank or investment company as an independent advisor, rather than naming it as a co-trustee. The fees for investment advice may be smaller than the fees it charges to serve as trustee.

Picking the Trustee Can Be a Family Affair

Many people setting up a trust prefer to make decisions about trustees themselves, if for no other reason than preserving their privacy. An alternative that makes a lot of sense, though, is that everyone in the family (not just the wage earner) see the fee schedule and other records of any professional trustee you’re considering hiring, so they can make an informed decision about who will make the best trustee. If the beneficiaries are old enough, they could be involved as well. After all, when the creator of the trust is enjoying eternal rest, they’re the ones who’ll have to live with this decision.

Your Lawyer Can Help You Choose

In choosing an institutional trustee, co-trustee or investment advisor, your lawyer may be able to give you some names of such companies, and may be willing to accompany you as you make the rounds, asking the trust officer the hard questions: What are all the possible fees you charge? What is your record of rate of return on trust investments? What is the mechanism for changing the successor trustee? What happens if the person assigned to your trust account leaves the bank or trust company? What if the beneficiary needs emergency cash from the trust? You may be able to judge how responsive the company will be to your beneficiaries by their responses to such questions.

Banks and large financial institutions intimidate a lot of people, but since you’re putting a lot of money in their care, you have a right to demand good service. Your lawyer should help you obtain it. Remember, doing the hard work now will save your children or other beneficiaries much grief later.