Your Top Trustee Options: Choosing between Private Trustees, Trust Companies, and Family Members

Choosing the right person or entity to manage a trust often appears a tough row to hoe for its settlers. The settler needs to be sure their assets are in safe and capable hands. It is not only personal relationships but also the professional skills and qualifications of the trustee that the ultimate decision depends on. The latter include inter alia legal knowledge, responsibility, fairness, and integrity.

Depending on your trust type, asset management may involve various tasks and responsibilities:

• investments and business management
• tax accounts
• beneficiary identification and updating the list of individuals who trust assets will be transferred to
• representing the trust’s interests in legal matters and resolving any disputes or issues that may follow.

Trusts and trust managers – what types are there?

The type of trust determines the best trustees and protectors for the specific purposes of that trust. A trustee and a protector have different roles, and they may not be the same person or entity.

FYI: A protector is someone whom the grantor (the person who creates the trust or owns the assets) appoints to oversee the trustee and deal with any possible issues. A trust agreement defines what the protector may and may not do.

Inheritance trusts

Oftentimes created by wealthy individuals and owners of large businesses to pass on assets, inheritance trusts fall into 2 categories. They can be either living trusts or trusts that only take effect after the trustor’s death. The choice between them determines whether the testator’s wishes are carried out while the latter are alive or only after they die.

It is how the trust is set up that determines who will manage the testator’s assets. 

In an inheritance trust, the corresponding assets are transferred to beneficiaries (heirs) only after the grantor (the person who creates the trust) dies. Here are the parties that will manage the trust in the above case:

• Protectors, who can be more than one person. The main protector and a backup protector in case something happens to the main one, whether it is an illness, their passing, or any other unforeseen circumstances.
• A trustee or an executor, who makes sure the will’s instructions are followed through the trust and takes care of any current issues.

To carry out the grantor’s wishes while they are still alive, you can create a living trust (a.k.a. inter vivos trust). In this case, the usual rules for managing trust assets apply, like with any similar structures.

Revocable trusts 

A revocable trust is a trust that a person or a company creates. Later on, they can cancel the above trust or change its beneficiaries and/or trustee. In this case, trust settlers themselves often act as trustees. Sometimes though they may need a trust protector to help them if they get sick, are incapacitated, or pass away.

The protector’s job is to make sure the trust agreement’s terms are followed. They are in charge of changing the trustee if needed and updating the list of beneficiaries. The corresponding agreement between the parties determines the rights and responsibilities of the protector according to the trustor’s wishes.

Who is the best person to manage assets in irrevocable trusts?

Created by will or otherwise, an irrevocable trust disposes of the grantor’s assets. Since it can’t be changed or canceled, the grantor should choose the trustee very carefully. In case something goes wrong, it will be hard to get back your money, business, or other assets.

Where an irrevocable trust is created, the trustee becomes a temporary owner of the assets until the latter are distributed between the beneficiaries following the grantor’s wishes. The trustee also has the right to change the number of beneficiaries, how often they get paid, and amend any other agreement terms.

With irrevocable trusts, many settlers want to protect their assets by hiring a protector. The protector should be skilled and professional and have no personal interest in the trust assets. It is best when the protector remains fair and impartial, no matter the circumstances.

Finding the right trustee

Who should you choose to manage trust assets? The answer to the above question depends on several things. Sometimes, the settler can be their own trustee. Alternatively, they may give the job to someone they know, like a lawyer or a family member. However, being a trustee is not easy. It involves more than just document maintenance. You may be surprised at how many functions modern trustees have:

• making important management decisions about the trust
• protecting trust assets
• submitting tax returns to the authorities
• finding experts for specific tasks. 

That is why many of us prefer to let a professional trust company handle trust assets instead of doing it ourselves or entrusting the task to a single expert.

Trustee selection: main criteria

Managing a trust is no mean feat. Depending on the particular trust type and the state laws, it involves multiple duties and skills. You need to choose a person or a company capable of handling these responsibilities well. They need to protect not only your interests but also those of your beneficiaries. Here are some factors to consider when selecting a trustee:

• Scope of Functions: The trustee has to follow the laws of the state the trust is established in and adhere to any agreements the parties make. Mind that the above responsibilities and the things trustees are in charge of may be quite extensive:
  • duly reporting income and property taxes
  • managing and selling real estate
  • valuing personal assets
  • dealing with creditors
  • keeping accurate records of trust account transactions
  • distributing assets among beneficiaries as provided for under the corresponding agreement or following their own judgment (depending on the trust type)
  • communicating with beneficiaries
  • resolving disputes and more.

• Time Commitment: Managing a trust may require a lot of time and effort. 
• Responsibilities: The trustee has to make important and complex decisions. They also have to decide who gets what from the trust. Personal relationships between the trustee, the protector, and the beneficiary can make it hard to be fair and impartial. In the absence of any personal connections corporate trustees on the other hand can make objective decisions and follow their fiduciary duties. They also ensure continuity, so that the trust is managed smoothly.
• Expertise: This is something that not every lawyer, legal professional, or family friend can boast of. Chosen from among friends or family members, private trustees may make mistakes or misuse trust assets because they lack knowledge and experience. Unlike them, corporate trustees are a team of reliable experts well-versed in accounting and state laws.
• Cost of Services: The above aspect is particularly important for long-term trusts,e.g., inheritance trusts or trusts created for children or the disabled. Corporate trustees usually charge a fixed annual or monthly fee based on a percentage of the trust assets’ value. Private trustees may work for a fee charged under a contract, but they may also spend money on third-party experts to assist them with trust management. Compared to corporate trustee services, this can make the total costs much higher in the case of private trustees.

Summing up

There exist several ways to manage a trust and its assets. NB: It is only after you have carefully considered all aspects and criteria involved like asset types, beneficiaries, and trustees that you may be sure you are making the right decision.

One way to keep control over your money without involving outsiders is to create your own trust company. However, be sure you understand the differences between a trust and an offshore entity.