Whether you need a special needs trust for a person with disabilities, an educational trust for your children, or some other trust, one important question you need to answer is, “who should I pick to be the trustee?” Typically, the choice of the trustee for your particular situation starts with deciding whether to use an individual or a corporate trustee, which is usually a bank or brokerage firm. As a rule of thumb, banks and corporate trustees have pretty substantial fees so using a corporate trustee would be less glamorous for a smaller trust. Generally, I wouldn’t recommend using a corporate trustee unless your trust will have a million or more dollars worth of assets.
A trustee’s services have both a human element and investment element. As a result, a person’s decision may often be influenced by the degree of the human and/or investment elements involved and whether you believe an individual or a corporation would be better suited to meet those elements in your situation. Often times, trusts will grant the trustee the discretion to distribute income or the principal of a trust to a beneficiary or among a group of beneficiaries. In such a case, the trustee will be called upon to make determinations of what is in the best interest of the beneficiary or beneficiaries. There may be complex family dynamics involved in making such determinations and so an individual trustee may be a better choice than a corporate trustee as an individual may be in a better position to evaluate those kind of decisions. This would be an example where the human element is very important when making your decision.
Further, as I mentioned earlier, corporate trustees have pretty significant fees while an individual trustee often performs his/her duties at no charge. However, if the human element and cost are not a major concern in your particular situation, then the perceived ability to make smart investment decisions for the trust would likely be the controlling element in making a trustee determination. Some banks and brokerage firms will require certain provisions to be included in the trust to minimize the trustee’s potential exposure to liability. As an example, a brokerage firm may own an investment vehicle, such as a mutual fund, that it seeks to sell and such a sale to a trust may violate fiduciary principles relating to ‘self-dealing’ and so a provision may be required to be included in the trust to waive the application of such a fiduciary principle.
It is possible for a trust to have mixed arrangements with regard to the trustee. Sometimes the person making the trust may decide that it would be best to have both an individual and a corporate trustee. In such a case, each trustee would have different responsibilities and decisions appointed to them. For example, the individual trustee can handle the human elements, such as discretionary decisions regarding how the income or principal of a trust is to be distributed, while the corporate trustee can handle the investment decisions.
On the other hand, there is an alternative to having co-trustees. The person creating the trust can name an individual trustee and then name an investment advisor to the trust. An example of when this may be desirable would be if you want a relative or friend to be your trustee because you know him/her personally and would trust the decisions he/she may make with regard to distributing the income to the beneficiaries, but you know he/she isn’t too savvy with regard to investment decisions. In such a case, it would be important for the trust to determine whether the advisor would have sole authority over the investment decisions or whether the advisor’s functions are merely advisory to the trustee, meaning the advisor would just make investment recommendations to the trustee.
Which trustee you choose depends upon your specific needs and wants and so it is important to consult with a local attorney to help you make the right decision for your beneficiaries. Adam S. Lutzke Law Offices can help you with these types of decisions. Feel free to contact us at (317) 577-3888, or at [email protected] for a free consultation.