Raskin Planning Group

Estate Planning (Part 4): Have You Chosen The Wrong Trustee?

{6:30 minutes to read}

This blog is part 4 of a series about trust planning. Part 1 described how a young family may utilize a trust. Part 2 discussed how trust planning can be vital for seniors and for children with special needs. Part 3 outlined how a wealthy family’s objectives can be secured over multiple generations with appropriate trust planning.

We were recently talking with a client about their estate-planning objectives and we described how trusts might resolve some of their concerns. Part 1 in this series about trust planning defined a trust and the parties involved. When a trust is established, choosing a trustee is an important decision. As the administrator, the trustee plays an important role for the grantor and the beneficiary and has significant responsibility.

The trustee can be an individual or a corporation. Oftentimes, there is more than one trustee and sometimes the grantor (the person who establishes the trust) is also the trustee. The trustee can be a friend, child, spouse, professional advisor (an accountant or attorney), or a trust company.

Duties of a Trustee

When choosing a trustee, consider the duties required to manage the trust and the potential liabilities. A trustee is legally bound by the trust document which, if well drafted, spells out the grantor’s objectives and the trustee’s duties and responsibilities. It is impossible for trust language to address every situation, so a trustee is often required to interpret the trust (like a Supreme Court Justice) and make a reasoned and appropriate decision based on the facts as presented. Sometimes, a trustee’s job is easy and sometimes it is very difficult. The bottom line is that a trustee must act as a “fiduciary,” always in the best interests of the trust beneficiaries. While the trustee cannot delegate his or her duties to another person, the trustee can hire professional experts or advisors to provide specific advice or services.

The Trustee must keep accurate records, file tax returns, and report/account to the beneficiaries as the trust requires. The trustee must also maintain trust property and manage trust assets with a reasonable degree of skill and care. Assets must be invested “prudently” according to the objectives of the trust and the needs of the beneficiaries.

How Much Does a Trustee Cost?

  • Family members often don’t charge for their services, but sometimes a friend or family member trustee is paid a flat nominal fee each year.
  • Accountants and attorneys often charge by the hour.
  • An independent corporate trustee usually charges a percentage of assets to act as a trustee. They may charge additional fees if necessary. Smaller trust accounts may need to pay the trustee a minimum fee.

Have You Chosen the Right or Wrong Trustee?

Example one: Jane and John have a moderate estate valued at $1,000,000. At their deaths, they want to avoid the expense and headache of “probate.” They have good relationships with their adult children who are responsible and loving. They want their children to inherit their assets (whatever is left) when they are both deceased.

They have both established and funded “revocable living trusts.” That means they have transferred investment accounts to their respective trusts while alive. Jane and John are co-trustees of their trusts while they are both alive. If Jane or John die or become incapacitated and are unable to serve as trustee, the two children step-in as co-trustees along with the surviving spouse. At the death of the surviving spouse, the trust will distribute all assets to the children.

Example two: Dick has established an Irrevocable Life Insurance Trust and named his wife Beth and their estate planning attorney as co-trustees. Beth and their children are beneficiaries of the trust. The trust owns a large life insurance policy on Dick’s life. At his death, the life insurance policy death benefit is paid to the trust income and estate tax-free. Dick makes a “gift” each year equal to the life insurance premium by sending a check to the attorney who deposits the gift into the trust. The attorney then pays the premium directly to the insurance company. He also sends a letter to the trust beneficiaries, notifying them of Dick’s gift. This administrative process is necessary to ensure the life insurance policy proceeds will remain estate tax free. It is a worthwhile small expense that may save the family hundreds of thousands of dollars in estate taxes.

Example three: Dan and Sally have a $7,000,000 estate with three grown children and five grandchildren. One child has mental illness and strained relationships with his parents and siblings. He is divorced, works sporadically, and has a teenage daughter. Dan and Sally are concerned about his financial decision making and they do provide some financial assistance to him and his daughter.

The second child is married with two children, is financially independent, but has had marital issues for years. Dan and Sally are hopeful, but don’t know if the marriage will last.

The third child is also married with two children, appears to be happily married, is financially secure and lives a plane ride away.

Dan and Sally have established a trust for the benefit of their children and five grandchildren. The trust will be funded at Dan and Sally’s deaths. Children and grandchildren will have access to income and principal at the discretion of an independent corporate trustee. Because of the trust design, trust principal will be protected from creditors (like a former spouse suing for assets). They have chosen a corporate independent trustee for the following reasons:

They didn’t want to burden non-professionals (siblings, friends, relatives) with the ongoing financial needs of their children and grandchildren. Money can complicate relationships and Dan and Sally didn’t want this to be a focal point for family and friends.

They want the trusts to provide for both children and grandchildren. Their goal is to provide financial assistance to multiple generations and to pass-on important family values, specifically education, the arts and charity. They don’t necessarily want their heirs to rely on these assets but they do want to offer some level of financial freedom. To this end, they wanted the expertise of a corporate trustee that can work with multiple generations.

These are just a few examples of situations where clients have made different trustee choices. Every family and circumstance is unique. At the Raskin Planning Group, we can offer advice and counsel concerning your trustee decisions. Please note that we do not act as a trustee in any capacity.

Contact us and we can help you determine the best strategy for your family.

The content of this material was provided to you by Lincoln Financial Advisors Corp. for its representatives and their clients. Peter Raskin is a Representative with Lincoln Financial Advisors. Securities and advisory services offered through Lincoln Financial Advisors Corp., a broker/dealer and registered investment advisor. Insurance offered through Lincoln affiliates and other fine companies. 125 Summer Street, Suite 1400, Boston, MA 02110. 617.728.7433. Raskin Planning Group is not an affiliate of Lincoln Financial Advisors. CRN-1523499- 061316

Estate Planning: (Part 1): Does a Young Couple Need a Trust?
Estate Planning (Part 2): Finding Solutions to Unforeseen Problems
Estate Planning: (Part 3): Securing Assets Through Multiple Generations

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