Choosing Your Trustee: These Are the Common Options
A friend or family member with some financial acumen might be your go-to choice, but there are some disadvantages to consider. There are also other options.
![A man points at a woman's photo among many on a digital display.](https://cdn.mos.cms.futurecdn.net/3AQPWTE86D5zQ9qj5FvudT-415-80.jpg)
“How do I choose the right trustee?”
This is a question we frequently hear from families engaging in estate planning. The trustee is the legal fiduciary with responsibility for managing and administering trust assets for the beneficiaries, such as children, grandchildren or other loved ones, in accordance with the trust’s terms. In setting up a trust, one of the most critical decisions the trust creator (or “grantor”) makes is who to name as trustee.
As the name implies, a trustee should be someone you trust, but there is a continuum of choices with different attributes. In this piece, we will focus on the most common trustee options and delve into key considerations as you explore the right solution for you and your family.
![https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-200-80.png](https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-320-80.png)
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Choosing an individual as trustee
A family member or close family friend is often considered a “go-to” trustee choice. This person has the benefit of understanding the family dynamics and is implicitly trusted to maintain confidentiality. Generally, a family member or friend will be able to lend some financial acumen while performing the job for little or no fee, making this a highly cost-effective option.
However, there can be drawbacks. The trustee may be influenced by their personal relationships, which could cause them to make decisions that are ultimately not in the best interest of the trust parties.
The lack, or reduced amount, of compensation can also pose problems if the role becomes time-consuming, leading to trustee responsibilities being on the “back burner” or creating resentment.
And any individual acting alone introduces an element of “human risk,” meaning that the unexpected can happen (e.g. illness or death), so it’s important to identify successor trustees or appoint co-trustees.
Selecting a private fiduciary
A private fiduciary is a third-party professional who brings specific knowledge to the role of trustee, generally in-depth legal, tax and/or financial expertise. Grantors may choose to use a private fiduciary to ensure their trusts are administered professionally by someone who is not involved in the family dynamics.
Compared to other professional options, such as a corporate trustee, a private fiduciary typically has fewer clients and may provide more personalized service, taking time to get to know a family’s circumstances and sensitivities.
A private fiduciary will generally charge less than a corporate trustee, although they will expect to be compensated for their services.
As is the case with a family member or friend, a private fiduciary acting alone carries some human risk, making it critical to name a successor trustee or co-trustee.
Using an independent trust company
An independent trust company is a trust company that is not associated with a large bank. It performs the same function as a private fiduciary, but unlike naming an individual who may need to be replaced or succeeded, there is a built-in system to ensure reliability of service because of the trust company’s more robust infrastructure.
Many independent trust companies do not require that the trust assets be managed within their company, which many grantors like because they may already have an investment manager with expertise in managing the trust assets.
One drawback is related to cost — with greater resources, an independent trust company will likely charge more for its services.
Also, trust companies will often follow stricter procedures and may have greater bureaucracy, which may slow down the decision-making process related to trust distributions.
Engaging a corporate trustee
A corporate trust company, frequently a bank, can bring the greatest expanse of resources to the trustee role. Large trust companies may offer a range of services related to safeguarding and investing trusts, as well as providing tax, financial and estate planning services.
However, many large corporate trustee firms require that the grantor use one of their other services, such as custody or brokerage, in addition to providing a corporate trust officer. If the trust company has multiple business lines, there is potential to create misaligned incentives for trust officers. Not all trust companies are structured in the same way, so it is important to understand the incentive construct.
Even if incentives are aligned, a corporate trust company will likely charge more than the other possible trustee options because of the number of employees at the firm, the overhead and the additional service lines of business.
The selection of trustee(s) is an extremely personal decision and there is certainly no one-size-fits-all answer to the trustee selection question. While it is critical to find people who are trustworthy and financially astute, each grantor should make a decision that is aligned with their family’s financial circumstances and emotional sensitivities.
In some cases, it may make sense to appoint co-trustees, which can combine the benefits of ― or mitigate the less positive aspects ― of a certain type of trustee.
Related Content
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
Denise is a Director at Hirtle Callaghan with responsibility for leading family relationships from our Arizona office. Denise brings over 26 years of her legal and financial experience working with multigenerational client families on all aspects of their financial lives. Denise draws on her past experiences to help clients develop and implement their wealth transfer plans and makes recommendations about wealth transfer and tax-saving strategies.
-
Visa Is the Worst Dow Stock Wednesday. Here's Why
Visa stock is down sharply Wednesday after the credit card company came up short of revenue expectations for its fiscal Q3.
By Joey Solitro Published
-
Another Analyst Moves to the Sidelines on Tesla Stock After Earnings
Tesla stock is spiraling Wednesday after the EV maker's big earnings miss and Wall Street has been quick to weigh in. Here's what you need to know.
By Joey Solitro Published
-
Confused by Annuities? Making Sense of the Different Types
Many investors aren't sure if annuities are a good option for meeting financial goals. Let's look at the different categories, along with their pros and cons.
By Kris Maksimovich, AIF®, CRPC®, CPFA®, CRC® Published
-
Talkin' 'Bout My Generational Wealth: Baby Boomers
With retirement, each generation has different priorities and challenges. For Baby Boomers, it's a matter of ready or not, here it comes.
By Alvina Lo Published
-
How to Avoid a Big Hassle if Your Financed Car Gets Wrecked
How an insurance check is made out for repairs can cause a world of problems if the lienholder is left out.
By H. Dennis Beaver, Esq. Published
-
Estate Planning Strategies to Consider as Election Nears
Are big changes in tax laws coming soon? Not likely, but you might want to take advantage of higher estate and gift tax exemptions well before the end of 2025.
By David Handler, J.D. Published
-
How to Get Your Money's Worth From Your Financial Adviser
A good financial adviser will focus on how your financial planning and investment strategy align with your lifestyle and aspirations.
By Pam Krueger Published
-
Think of Prenups and Postnups as Financial Planning Tools
These contracts provide a clear framework for asset management and protection and are especially useful if you get married later in life.
By Andrew Hatherley, CDFA®, CRPC® Published
-
Congratulations on Your Raise: Three Things to Do With It
We're not saying you shouldn't spend it on a new car, but there are some considerations to guard against lifestyle creep and to help ensure a comfy retirement.
By Andrew Rosen, CFP®, CEP Published
-
Check Off These Four Financial Tasks to Finish 2024 Strong
The new year is a popular time to set financial goals, but now is the ideal time to check how you're doing. Four tweaks could make a big difference.
By Daniel Razvi, Esquire Published