The Benefits Of Professional Trustees
For larger, more complex trusts, an institutional trustee may be a better choice. It could be a bank, an independent trust company, a financial advisor or some other objective professional. "I've even seen trusts name an investment manager from one institution and a trust officer from another" to avoid competing interests within the same institution, says Laurel Alberty, president of Alberty Financial Planning Services in Atlanta.
Institutional trustees also boast expertise and bigger resources. "A corporate trustee represents an entity which has longevity, is unlikely to take sides in family conflicts, can spend whatever time is required on managing the trust, and has investment and money-management skills that a family member may not have," says Elaine King, a vice president at Gibraltar Private Bank & Trust in Coral Gables, Fla.
Professional Trustee Negatives
Yet corporate fiduciaries have a down side. For one thing, they're not familiar with your client or your client's family. If a beneficiary asks for an extra distribution, the trustee might not know the beneficiary has a history of gambling, for example. Trusts "dictate when and how distributions should be made," explains Shawn Barberis, an attorney at Lincoln Financial Securities Corp. in Towson, Md. But most "allow trustees to invade principal for beneficiaries' health, maintenance, education and support."
On the other hand, legitimate needs could be ignored, too. "Particularly if you're dealing with a large institution, it may not be responsive," says John Cornish, an attorney at Choate Hall & Stewart in Boston. "Beneficiary requests might have to go through a committee," he says-with only an impersonal 800 number to call in an emergency.
Another thing is that professional trustees can be more expensive. They customarily earn a percentage of the value of the assets plus fees for extra services. The additional cost, however, may be worth it. "Non-professional trustees should hire experts for investment strategy, accounting, tax filing and so forth, if they're doing their job properly-and those expenses come out of the trust," asserts Eisenberg, the Potomac, Md., attorney.
The Best Of Both Worlds
Since both a family member and a professional trustee can come with advantages and disadvantages, many grantors choose one of each to serve as co-trustees. "Co-trustees can have different responsibilities, and there isn't typically an added expense," explains Mark McLennon, a vice president at Northwestern Mutual Life Insurance Co. in Milwaukee, Wis.
Sometimes the institutional co-trustee is based in another state so the clients can take advantage of favorable tax and trust laws. Delaware, for example, is a popular location for trusts. The other co-trustee could then be someone closer to home.
How To Choose
Potential trustees should be screened carefully, whether they are friends or professionals. Referrals from attorneys, accountants and the like are a must. Clients should "interview candidates about how they would handle certain trust matters, their experience and qualifications, their fees and staff resources," suggests Gregory Dubnansky, a wealth advisor at the Provident Bank in Jersey City, N.J.
Generally, trust attorneys shouldn't be considered for trusteeships if they're also creating your trust documents. But CPAs, financial advisors and others familiar with the grantor's finances are fair game.
The trustee decision shouldn't be etched in stone, either. After all, things change. "You might allow people to automatically become a trustee or co-trustee when they attain a certain age, or remove them when they become too old," says Richman, the Chicago attorney.
Similarly, if a trust designates a relative by marriage, the designation could be revoked if there is a divorce. "It would be unusual not to provide what we call back-stop trustees," says Terence Nunan, a lawyer at Rutter Hobbs & Davidoff in Los Angeles. "So if your brother isn't available, for example, number two would be X and number three Y."
Trustee Succession
If a trustee doesn't match expectations, the grantor can pick someone new. Or that right can be ceded to someone else, such as a spouse. "It's fairly common for trustees to select their own successors," says Nunan.