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What to Consider When Choosing

A TrusteeTrusts are an estate planning tool used by individuals and families, and can be a powerful way to help control assets and build a legacy through the use of legal structure. They can be flexible, varied, and complex, but in the creation of any type of trust, choosing a trustee

and successor trustee(s) is a critical, and potentially difficult, part of the process. Selecting the right trustees is important to keeping a trust functioning smoothly and as it was intended.

Duties of a trustee

Should the trustee be a relative, friend, lawyer, accountant, or a professional corporate trustee? Should they act as co-trustees or act in succession and, if in succession, in what order? Regardless of who or what entity is chosen, the trustee will have a large fiduciary responsibility that may include any or all of the following (NOTE: this list is not exhaustive):• Carry out the terms of the trust and seek specialized legal, tax,

and accounting advice when needed for complex matters

• Establish open channels of communication with beneficiaries

and maintain impartiality, integrity, fairness, and sensitivity to

beneficiaries’ needs

• Make trust distributions on a timely basis as directed by the

trust agreement

• Make decisions regarding the investment allocation and

ongoing management of trust assets

• Fulfill tax, administrative, and custodial obligations, such as:

» File trust tax returns annually and furnish tax information

(such as Form K-1s) to beneficiaries

» Maintain an inventory of trust assets and their value, and

keep detailed records of transactions

» Pay bills from the trust as permitted or directed by the

trust agreement

These duties may go on for many years, a lifetime, or even multiple generations depending on the type of trust, so it is understandable why choosing an appropriate trustee

BY Michele Francisco, CFP®

Vice President, Senior Wealth Advisor

and successor trustees can weigh heavily on a grantor. It can be helpful if the grantor first identifies what s/he seeks to accomplish with the trust and then considers who is most qualified to serve as trustee based on that objective.

inDiviDual trustees

In many cases, grantors choose an individual, such as a relative or close family friend, to act as trustee. This individual is generally well-known and trusted by the family. Someone with a degree of business acumen is often an appealing choice as well. However, taking into account the scope of potential duties outlined above, the advantages and disadvantages to choosing an individual need to be weighed.

Advantages:• A relative or close family friend would likely have personal

knowledge of the family’s unique situation and the grantor’s

intent, and could apply this knowledge when carrying out the

terms of the trust.

• Someone who is close to the beneficiaries and aware of their

needs may be better able to evaluate and respond to them

when necessary.

• An individual is likely to serve as trustee for this particular

trust only (perhaps in addition to other trusts in the family)

and not have obligations to multiple clients and beneficiaries.

• The expense would probably be lower compared to a

professional trustee, even if the individual is entitled to some

level of compensation in the trust.

Disadvantages:• A close relationship with family could cause the individual to

be easily influenced by one or more of the beneficiaries, which

can lead to disputes within the family or with the trustee.

• An individual may lack knowledge of trusts, investments, and

other administrative and custodial obligations that the trustee

must carry out.

• Other personal obligations (full-time work, family, etc.) may limit

this person’s ability to carry out trustee duties in a timely manner.

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• The anticipated cost savings could be offset if the individual

needs to enlist professional help (from attorneys, accountants,

investment advisors, etc.), incurring expenses that could be

avoided by a corporate trustee with in-house resources.

• Continuity could be an issue if the individual ceases to act for

various reasons.

Corporate trustees

The grantor may choose to name a professional, corporate trustee to avoid burdening a family member or close family friend with the task. Or sometimes the decision is made because the dynamics in the family or the complexity of the trust would be better served by an independent trustee. In any case, just as with individuals, corporate trustees have advantages and disadvantages, depending on each family’s unique situation.

Advantages:• A complex and burdensome experience can be shifted to an

organization that has experience and is familiar with the many

regulations, rules, and procedures required for administering a trust.

• Objective and impartial, corporate trustees will follow the terms

of the trust without being influenced by familial agendas.

• Corporate trustees are not mortal, so they are able to serve as

trustee for long periods of time, giving the family continuity.

• Reputable corporate trustees carry liability insurance coverage

and capital surpluses. They must also meet strict compliance

standards set by state and/or federal regulatory agencies and

conduct an annual audit.

Disadvantages:• Lack of a personal relationship could mean the grantor’s intent is

not carried out or beneficiaries’ needs are not well understood.

• Trust officers may be burdened with overseeing many, many

trusts and, while there is longevity with naming a corporate

trustee, there could be turnover at the trust officer level.

• A corporate trustee will likely be more expensive than using an

individual as a trustee.

unbunDleD vs. bunDleD Corporate trustee serviCes

Should a grantor decide to go with a corporate trustee, we highly recommend looking at providers that allow for maximum flexibility. A trust may exist for decades, and in some cases, perpetuity, so it’s important to account for

flexibility in anticipation of future generations.

There are some very well-known trust companies that only offer bundled services, meaning they will only serve as corporate trustee if they also have custody of the assets and management of the investments. While the simplicity may seem appealing, this structure not only creates many conflicts, but can also increase costs exponentially. Furthermore, it forces the family to be captive to one provider for all services.

The unbundled corporate trustee model generally allows the corporate trustee to focus solely on the administration of the trust and designates other entities as custodians and investment managers. Not only does this reduce potential conflicts, but it also allows the family to seek out best-in-class providers. From a flexibility standpoint, changes can be made to each of the trustee, custody, and/or investment management relationships while allowing the other service providers to remain in place.

summary

Choosing the most appropriate trustee, whether an individual or corporate solution, obviously requires much consideration and will be different depending on each grantor’s specific situation and needs. Your RMB advisor can help you explore different solutions and partner with your estate planning attorney to make sure your documents, whether new or old, reflect your current intent from a trustee perspective and are set up to provide maximum flexibility for your family and future generations to come.

__________________________________________________________________________Sources:- Advisory Trust, “The Duties of a Trustee” and “Independent Corporate Trustees.” - CFA Institute, “Advising Trustees: The Five Biggest Pitfalls,” Lauren Foster, CFA.- Financial Times, “Trust is the word for inheritance riches,” Len Costa, April 26, 2008.- Trust & Estates, “Appreciating Individual Trustees,” Mark Cohen, December 1, 2006.- Trust & Estates, “Appreciating Corporate Trustees,” Barbara R. Hauser, August 1, 2005.

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The opinions and analyses expressed in this communication are based on RMB Capital Management, LLC’s research and professional experience, and are expressed as of the date of our mailing of this communication. Certain information expressed represents an assessment at a specific point in time and is not intended to be a forecast or guarantee of future results, nor is it intended to speak to any future time periods. RMB Capital makes no warranty or representation, express or implied, nor does RMB Capital accept any liability, with respect to the information and data set forth herein, and RMB Capital specifically disclaims any duty to update any of the information and data contained in this communication. The information and data in this communication do not constitute legal, tax, accounting, investment, or other professional advice.

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