By Jeannette Roegge
Finding the best executor or trustee to manage and protect assets is a critical step for clients.
Many people choose a close friend or a family member for number of reasons: cost, simplicity, familiarity or even just a sense of obligation. Often, such arrangements go off without a hitch. However, when things do go wrong, they tend to go very wrong. Almost all advisors know stories from their professional or personal experiences of family trustee or executor appointments that went horribly awry. Depending on your client’s circumstances, the complexity of his testamentary wishes and the size of his estate, among countless other individual variables, these cautionary tales may make the appointment of a corporate trustee an attractive option.
Here are a few points to discuss with clients to help determine whether a corporate trustee or executor might be beneficial:
- Organization. A corporate trustee, usually a bank or trust company, will have in house professionals with a depth and breadth of experience and knowledge including facility with the technical, legal terms and fiduciary standards needed to ensure that the terms of any document are followed and legal and tax requirements are met. While individual advisors may offer similar depth of knowledge, it’s likely a client will need to involve multiple parties, including hired professionals, in order to properly administer an estate. For instance, a lawyer will have to draft the document, the designated executor or trustee will have to manage it and an accountant will often have to be consulted regarding the tax implications and to prepare tax returns. This can be a lot to manage.
- Objectivity. Good corporate trustees are known for their objectivity in enforcing the terms of the trust and the grantor’s intent. A family friend or relative may find it difficult to make decisions because of an existing relationship with a beneficiary or the testator. Consider the child who serves as the trustee of a trust for the benefit of his sibling. The trust document may direct that distributions should be made only for health, education or to meet an emergency need, but the sibling requests a large distribution to fund a new business venture. A corporate trustee can say no and provide a rational explanation for the denial of the request without incurring any suspicion of its motive. Such objectivity may also be helpful in making difficult decisions concerning trust assets, such as the sale of a family vacation home or business.
- Reduce Family Discord. Having family members serve as trustees may thrust them into uncomfortable positions that they may not be fully equipped to handle (or desirous of handling). The sibling as trustee example above could easily cause family strife. As another example, an uncle serving as a trustee may feel that an adult child should, as a matter of principle, be able to pay all of his monthly expenses. Maybe there was a history of that child behaving irresponsibly as a young adult that still colors the uncle’s opinion. Or, maybe the uncle is right to deny the child. Regardless, a corporate trustee can see the larger context of the child’s resources without including decades of baggage. A corporate trustee shields the family members from involvement in intimate and nuanced decisions about the estate and may lessen the chances of disagreement between them as a result.
- Remove Burdens Placed on Family Trustee. When a family member is given the responsibility of overseeing the affairs of a trust, it can place a significant burden on that person. Adult children may have young families and/or demanding careers and their lives will naturally come first. A surviving spouse may no longer have the aptitude or desire to take on such a role after their spouse’s death. Though a named trustee has the right to refuse to accept the position, close family members and friends may be hesitant or uncomfortable doing so.
- Avoid Conflicts of Interest. A trustee or executor may also be a beneficiary. Although it can create a conflict of interest, such conflict does not disqualify a person from serving in the fiduciary role. However, the reality is that it can be difficult to make decisions and ignore personal interests. It may also lead other family members to perceive that the administration has been unfairly tilted in the trustee’s favor.
While corporate trustees offer many advantages, not every corporate trustee is the right solution for every circumstance. When advising your clients about selecting a corporate trustee or executor, always remind them that circumstances and relationships may change. Be sure to counsel clients to include provisions in their documents that allow for the removal, without cause, of the corporate fiduciary, as well as the appointment of a successor trustee.
Jeannette Roegge is the Chief Fiduciary Officer at Chevy Chase Trust of Bethesda Maryland. With over 15 years of experience in private practice as an estate planning attorney advising wealthy families and businesses, she oversees all fiduciary services at the firm.