Trusts are powerful legal tools that enable individuals to manage and distribute their assets according to their wishes, even beyond their lifetime. Selecting a successor trustee — the individual or entity responsible for administering the trust in the event of your death or incapacitation— is a pivotal decision in the trust creation process. The successor trustee is responsible for managing and eventually distributing the trust’s assets to beneficiaries.
While family members often come to mind as natural choices for successor trustees, appointing children or your favorite niece or nephew as a successor trustee comes with its own challenges. Trust management is complex by nature, and family members who serve as trustees often find themselves faced with numerous legal, financial, and administrative tasks. These responsibilities can be daunting, especially when dealing with substantial assets and intricate estate plans.
In addition, the assumption that family trustees will always act in the best interest of beneficiaries can lead to complacency and lack of oversight. It’s crucial to remember that even family members can make mistakes, misinterpret trust terms, or, in the worst cases, misuse funds.
Fortunately, trustors and trustees need not shoulder this burden entirely on their own. Instead, they have the option to enlist the support of competent advisors, such as estate administration attorneys, to provide expert guidance and assistance throughout the process.
If, however, you want to reduce the burden of estate administration on family-appointed successor trustees, two alternative options are worth considering.
The Institutional Trustee Option
Institutional trustees, often banks, have always been popular successor trustees due to their financial expertise and stability. Institutions have access to resources and tools for effective risk management, which can be crucial in preserving and growing trust assets. They also have access to a wide range of financial and legal experts, enhancing their ability to handle complex estate and financial matters.
That said, collaborating with an institutional trustee can presents a conflict of interest that shouldn’t be overlooked. Their compensation is typically linked to the assets they manage, meaning that the larger the trust portfolio is, the higher the fees that they are paid. This compensation structure, so well aligned to wealth accumulation for clients, can in this circumstance function instead as a disincentive to promptly distributing funds to beneficiaries, even if the terms of the trust direct them to do so. As a result, if you are considering naming an institution as your successor trustee, carefully read the trust documents, understand how the fees are structured, and ensure the organization aligns with your overall vision for the trust.
Private Professional Fiduciaries
Another successor trustee option is a Private Professional Fiduciary (PPF). PPFs specialize in trustee work but do not manage money themselves. Instead, they focus solely on fulfilling the administrative and fiduciary responsibilities outlined in the trust. This separation of duties can help alleviate a typical institution’s conflict of interest since PPFs do not stand to gain financially from holding on to trust assets. PPFs serve solely as impartial administrators, dedicated to ensuring the trust’s intentions are executed faithfully and without financial bias.
Private Professional Fiduciaries can also offer lower fees than institutional trustees. Still, their focus on administrative and fiduciary tasks, rather than inclusive trust management, can feel like excess cost if one is already paying for portfolio management. If this is a concern, you (and the trustee) should look for a portfolio manager whose costs better align with an ‘asset management only’ project.
Informed and Balanced Trustee Decisions
Selecting a trustee is a decision that should be made after carefully considering the potential conflicts of interest and risks associated with the options. While institutional trustees may offer financial expertise, you should consider the potential conflict of interest arising from their dual roles as asset managers and trust administrators. Private Professional Fiduciaries, on the other hand, may provide more impartial administration, but may require other adjustments in order to be a cost effective solution. And if you decide that a family member is the right chose as a successor trustee, it’s important to create certain checks and balances.
Whatever kind of trustee you initially establish for your trust, you may want to talk with your attorney about creating a trust provision that grants beneficiaries the eventual authority to replace a trustee in case of concerns about his competence or adherence to the terms of the trust.
By striking the right balance between expertise, impartiality, and accountability, trust creators can safeguard their intentions and beneficiaries’ interests for generations to come. While Griffin Black doesn’t offer legal advice, we’re your partners in working with skilled estate planning attorneys to create the trust that suits your needs and fulfills your legacy. Our mission is to guide you through every step of trust creation and management, ensuring you make informed decisions — including the crucial choice of a successor trustee. Ready to navigate the world of trusts with confidence? Contact Griffin Black today to get started. Your trust journey begins here.