In recent years, trusts have become a popular financial planning tool. Whether they are for wealth transfers, estate planning, creditor protection or other purposes, they "are almost required these days," says Kevin Mooney, a financial advisor at Jagen Investments in Henderson, Nev.

Yet trusts can only be as successful as the trustees who manage them. So picking the right trustees is crucial. That's not always easy. "A lot of clients may understand their own business models but not the complexities of trusts," observes David Kleinhandler, a wealth advisor at New York-based DKA.

Choosing Family And Friends
To help clients choose trustees, it's important to zero in on trust particulars. If the trust is designed mainly to transfer assets to children or grandchildren, a relative or close family friend would seem a logical choice. But, "This can become an uncomfortable discussion, involving all kinds of family dynamics," says Lenore "Elle" Hawkins, a director at Creekside Partners, an investment advisor in La Jolla, Calif.

"It's not a black-and-white situation," says Jeff Fishman, a financial advisor and attorney at JSF Financial in Los Angeles. "If small kids are involved, [a client should] choose someone familiar with the immediate family. That's the least unsettling option-someone who will try to maintain the kids' lifestyle. It should not be the same person who takes care of them, though, since there could be a conflict of interest."

If the trust consists primarily of real estate, family businesses or other assets that require ongoing, active maintenance, a family member or close relative probably makes the most sense, too. "Most corporate fiduciaries won't even want to serve these situations, because of the expenses and liability issues," says Robert Struble, a lawyer at Meyer, Unkovic & Scott in Pittsburgh.

Whoever assumes the trusteeship must also be good with financial matters. "You need to focus on the skills necessary to be a good trustee, not just personalities," advises Lawrence Richman, an attorney at Neal, Gerber & Eisenberg in Chicago.

Family Trustee Shortcomings
Selecting a close family member doesn't guarantee smooth sailing. "Where people make mistakes is in choosing someone they trust who happens to be incapable of fulfilling the requirements of a trustee," says Michael Kay, a financial planner at Financial Focus in Livingston, N.J.

Even if they're not incapable, relatives might be a little too close to the family and all its issues to be objective. "The good things they bring to the table are knowledge of the family history and circumstances. The bad are the biases, unsettled feuds and prickly emotions," says John Brennan, an attorney and financial planner at Cape Ann Savings Trust and Financial Services in Gloucester, Mass.
The problems can get so bad they poison family relationships. "Thanksgiving dinner will never be the same again," says Jay Eisenberg, an attorney at Potomac, Md.-based Shulman, Rogers, Gandal, Pordy & Ecker.

Being a trustee shouldn't be taken lightly. "It's a job, not an honor," says Richman, the attorney in Chicago. "There's real work involved."

That's why trustees-even if they are family-should be compensated. Fishman, the Los Angeles attorney, suggests paying them annually 1% of the value of the assets, at a minimum. "It's a huge responsibility that takes a lot of time," he insists.

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