Trust Planning

Trust Planning

Estate Planning and Wealth Management

How to Choose a Trustee

Estate planning basics rule #1: do not choose a bank as trustee.

Banks have so many conflicts of interest with managing your assets that it is not wise to entrust your estate to them. Banks often give worse rates of interest for the cash part of trust than they give their retail customers, they may invest in their own mediocre to poor performing mutual funds, they may ignore and neglect the assets for years at a time, they may flagrantly ignore the Prudent Investor Act, and they charge unusually large fees annually and at the start and end of the trust (expect to be docked at least 1% of your estate at the start and again at the end of your trust, if your trust formation document does not specifically prohibit this—and few estate lawyers who want repeat referrals from banks will include appropriate prohibitory language in their draft of a trust formation document). In other words, banks are making money on your money; money taken from your trust that would otherwise have gone to your family when you die. In addition, the burden of trying to get transparent reporting and/or just plain fair treatment from a bank is on you and your family. As you can imagine, this can range from very expensive to impossible. If you have any doubts about the unrecoupable fees a bank will charge you, ask a major bank trust department to send you their schedule of fees (and note that they can (and will) raise their fees at any time—they simply publish a new fee schedule). Expect to be charged just about everything on the fee schedule. If you think you can go to court to get it fixed, think again. Try this: make up a simple scenario where a bank has taken advantage of you and call a couple of lawyers and see if they will take on your case (they probably work for the bank and so will not take your case out of conflict of interest). If they say they could take it, ask if they will take it on contingency or for a fixed fee (no way). Then ask how much they think litigation of this would cost, in total, including hiring your experts and how much it could cost you if you lose (paying the bank's ligation costs).

Estate planning basics rule #2: hire a good independent trustee.

Choosing your trustee will be your most important decision. Look for a trustee who has no inherent conflicts of interest. Look really deeply at this. Think it through. Here is a good article by the Utah state bar association on what to look for in a trustee.

What about choosing a friend or family member as trustee? This can be a good option, if family relationships are stable and strong, and can also be a free or low-cost option if your friend or family member is willing to serve as trustee without fees. See the page on Special Needs Trusts for situations where a family member may NOT be a good idea.

Estate planning basics rule #3: consider using co-trustees.

Consider the trustee pair of a professional fiduciary and a responsible family member.

If you hire someone independent who is professionally trained to manage trusts, there is no conflict of interest. Other than their making a set, reasonable annual fee, they do not stand to gain from the assets themselves. These people are professionally trained and qualified fiduciaries. Standardized organization, training and certification of these professionals is still quite new. California recently passed legislation in this area (to protect the elderly from abuse). Here is link to the California Professional Fiduciary Association.

How do the wealthy choose trustees?

The ultra wealthy have their own way to go about managing a trust. They divide the responsibility between three experts: 1) a professional wealth manager familiar with trusts 2) a lawyer who knows the family and knows trust law and 3) a responsible family member. This group meets annually (or more often) to coordinate their long- and short-term strategy and needs. In addition, an accountant very familiar with annual trust tax filings will be used once a year and may advise on changing tax situations. This is all stipulated in a good trust formation document.

Trustee & Fiduciary Resources

Other "estate planning basics" articles on our site:

How to Choose a Financial Planner
Conflicts of Interest Common in Estate Planning
The Hidden Side of Managing Money
Common Estate Planning Mistakes
How to Choose a Financial Planner
Choosing the Right Executor for Your Estate
Socially Responsible Investing and Big Banks

And don't forget the California Professional Fiduciary Association website (link above).

Please feel free to add your suggestions, comments and resources (via the Feedback link on the left menu).