Quick. Would you trust to manage your assets if you were incapacitated and after you are gone? Did you draw a blank.
You see, choosing a trustee is one of those difficult decisions that can delay ... and delay ... moving forward with your estate plan.
In fact, in my experience since 1985, it is right behind appointing guardians for minor children and how to divvy up the inheritance.
A recent Investing Daily article, titled "Making Your Most Important Decision," has some strategies to consider when selecting the financial fiduciaries for your estate.
Have you considered co-trustees?
Both professional trustees and individual trustees each have advantages and disadvantages. You may get the best of both by naming co-trustees. There are different ways to structure a co-trusteeship, too. You should consult an experienced estate planning attorney about which options may be best for your unique circumstances.
For example, a trust company could be the primary trustee. It would take care of the record-keeping, administration, and investments. You know, the "green eyeshade" details. At the same time, your trusted friend or family member could serve as a co-trustee with full access to all the records with full access to review them and spot any issues. The original article suggests giving the non-professional co-trustee the power to veto fees, investment decisions, and other key actions.
If the trustee has the power to decide the timing and amount of distributions, it can be a source of problems, disagreement, and headaches. One idea the original article suggests is to give the non-professional trustee sole authority over distributions. However, in my experience one of the benefits to having a trust company is the ability to play the heavy when needed. In fact, they can be the "abominable no man" when Johnny wants a red sports car to drive on campus. Much easier for the trust company to say no than Johnny's favorite uncle/co-trustee, yes?
Another option is to have several co-trustees who determine the schedule and amount of distributions. They can also be required to make unanimous decisions. With a trust, you have the ability to set things up the way you think will be best. However, you might have a tough time getting a professional trustee to go along with a position that is full of limitations.
Have you considered splitting "duties" between co-trustees?
Another option in trying to get the best solution for your loved ones is to split trustee duties between co-trustees. For example, you could have several trustees, each given the responsibility for a specific function, or you can have just one trustee who employs several professionals to conduct some of the duties.
There are many ways to split the trustee duties. In general, there are three main areas of trustee duties: (i) Administration; (ii) Asset management; and (iii) Distributions. For example, you could choose a team that looks like this:
- A corporate trustee to keep the records, prepare taxes, and keep custody of the assets.
- An investment manager to serve as co-trustee handling only the investment decisions.
- A friend, family member, or professional advisor to be a third co-trustee who decides how much to distribute and makes any other decisions.
There may be a simpler, more practical strategy yet.
The original article suggests that what may be the simplest approach to splitting trustee duties is to name one or more individuals as co-trustees and then specifically empower them, and perhaps encourage them, to hire professionals under them for administration, tax reporting, and investing. In this scenario, the professionals technically would not be trustees. They would be employed by the trustee. The person appointed trustee would be responsible for distributions and other matters.
These are only a few ideas. Check out this article and then speak with your estate planning attorney about trustees.
For further reading, check out an excellent, timeless Kiplinger's magazine article, titled "In You They Trust," about what you should know (before it is too late) if you are ever appointed as a trustee.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri) and to download free tools to help you organize your estate, visit my estate planning website.
Reference: Investing Daily (October 10, 2014) "Making Your Most Important Decision"