Ensuring
your plans are executed according to your wishes is an important consideration
for wealthy individuals. As such, a great deal of attention is paid to the
importance of having a will or well-written trust document so your assets can
be distributed as you designate. While this is a critical step, of equal
importance is choosing a successor trustee-the person or entity that will carry
out those wishes on your behalf.
Successor trustees are held to a
fiduciary standard. This means they are required by law to be the caretaker of
the grantor’s rights, assets and/or well-being and will carry out those
responsibilities with the utmost degree of care, honesty and loyalty. As a
result, many grantors automatically default to family members or other trusted
individuals when selecting a successor trustee. While on the surface this might
appear to the logical choice, choosing an individual as a trustee can create unexpected
consequences.
Depending upon the value or composition of the assets held in a trust,
acting as successor trustee can become very complex. The trustee must ensure
all assets in the trust are administered appropriately and will be responsible
for record-keeping, the filing of tax returns, prudent investment decisions and
communications with beneficiaries.
For many individuals, these duties are extremely time consuming and
beyond their abilities. Additionally, the successor trustee is personally liable
to all of the beneficiaries if he breaches his responsibility, whether that
occurs intentionally or not. As with most matters involving money, tensions can
run high and it is easy for the trustee to become embroiled in family politics
or even accusations of malfeasance.
To help protect friends and family from this potential liability, more
and more wealthy individuals are seeing the value in selecting a corporate
trustee-typically a financial institution-for this important role. A corporate
trustee can be a smart solution because such entities:
• Bring a level of expertise that individuals acting as trustee cannot
offer, including investment management capabilities and management of special
assets such as real estate and closely-held businesses.
• Take on all of the liability associated with taking control of the
assets contained in the trust, thus preventing family members from exposure to
potential liability.
• Ensure trust funds are applied impartially among beneficiaries, based
on the language of the trust document. A corporate trustee will not be swayed
by the emotion of family dynamics, ensuring that the grantor's intentions will
be carried out.
• Offer consistency and longevity
that most family members cannot. Trust duties are not interrupted by family obligations, death or
any other unforeseen circumstance that could prevent a family member from
carrying out his or her duties.
So, as you think about whom to choose for successor trustee, carefully
consider a corporate trustee to fill this role. It could save your family a
great deal of heartache and ensure your wishes are carried out as you desire.
UNDERSTANDING THE ROLES IN A TRUST
When navigating the
topic of trusts, several different entities that play an important role are worth
defining:
Grantor - the creator or owner
of the trust. Only the grantor can make changes to his or her trust.
Trustee - the person or entity
who manages the assets that are in the trust. Often the grantor chooses to be
his or her own trustee.
Successor Trustee - the person
named to step in and manage the trust when the trustee is no longer able to
continue, usually due to incapacity or death.
Beneficiaries - the persons or
organizations who will receive the trust assets after the grantor dies.
Disclosure: Wills, trusts, foundations and
wealth planning strategies have legal, tax, accounting and other implications.
Clients should consult a competent legal or tax adviser.