Hi, thank you for tuning into today’s Emerald GEM, which stands for Get Educated in Minutes. I’m Shannon Howell, regional trust leader for Wilmington Trust’s Wealth Management Division and your host for today’s podcast. In today’s GEM I’m going to answer the question: What should be considered when selecting a trustee?
One of the important considerations when establishing your estate plan is who will serve as the trustee of any trusts you created during your lifetime when you are unable to serve, as well as any trusts created after your death. In general, your trustee, or in cases where multiple trustees are desired, co-trustees can be individuals such as a family member or friend, a personal advisor such as your attorney or CPA, a corporate trustee, or a combination of these. There is not a one-size-fits-all solution – in making your selection, it is important to understand the requirements of the role, the fiduciary duties, the inherent complexities in trust administration, the willingness of an individual or institution to serve as trustee of your trusts(s) based on your particular circumstances, and the potential liabilities placed upon the trustee in fulfilling their role. It can be helpful (and generally advisable) to talk through your situation with an experienced estate planning attorney and even a trust advisor at a financial institution to identify some of the nuances your trustee may face.
When evaluating your options for trustee, there are many factors to consider. For example,
- Do they have the ability to understand complex tax and trust management issues?
- Do they have the time to serve?
- Do they have the knowledge to manage securities, real property, closely held businesses or other complex assets?
- Do they have the ability to be impartial?
- How long is the Trustee likely to be able to serve?
So, let's discuss the role of trustee in more detail to evaluate these questions. In general, a trustee is bound by five duties.
- The duty to carry out the terms of the trust,
- to be prudent,
- to be loyal to the trust,
- to give their personal attention and
- account to the beneficiaries.
The breach of one of these duties may result in personal liability for the trustee.
A trustee is legally bound to competently administer the trust based on the terms of the trust instrument carrying out your intent as laid out in the document (and any amendments that may be made to the trust over time). In addition, the trustee must defend the trust and its beneficiaries against anyone who challenges its validity. Also, in general, the trustee may not delegate their duties to another person, although they may hire professional experts or advisors, such as attorneys or accountants, for specific advice. However, the trustee is required to oversee the professionals that they hire to ensure they are acting competently.
The duty of prudence, generally requires the trustee to ensure that the trust property is invested, acquired, sold and managed in a productive manner. This requires a reasonable degree of skill and care when managing the assets – the greater the complexity of the asset, the more time and resources this will take. The duty to invest prudently is generally evaluated by conduct, and not performance. For example, a loss in principal value while prudently invested is likely not a breach, while holding a concentration in one or more assets resulting in a loss would likely not be considered prudent and therefore subjects the trustee to potential liability.
The duty of loyalty to the trust, in general, dictates the trustee should possess, protect, and preserve the trust property separately from their own property. They may not engage in self-dealing or receive personal benefit (other than reasonable compensation) from the trust. The trustee must remain free from conflict in all aspects of fulfilling their duties.
Your trustee must have the ability to maintain accurate records, file tax returns, and report to the beneficiaries regularly according to the terms of the trust and state law. This requires adherence to strict trust accounting rules (which are generally governed under state law) that impact the interest any individual beneficiary or class of beneficiaries has in the trust. For example, an incorrect allocation could favor one beneficiary over another resulting in a breach of the trustee's duty, exposing them to potential personal liability.
In carrying out these duties, the trustee must remain impartial to the beneficiaries, administering the trusts solely in the beneficiary's best interest, and must put aside his or her own self-interests. The trustee must treat all beneficiaries objectively and must not favor one beneficiary over another nor one class of beneficiary (such as an income or remainder beneficiary) over another. Should conflicts arise among the beneficiaries, the trustee must always display impartiality and cannot take sides. If the trustee is unable to remain impartial, even though exercising his or her duties in good faith, they may become personally liable for any harm occurring to the disadvantaged beneficiaries.
Now that we have reviewed some of the general duties a trustee is required to perform, I'd like to briefly review the general benefits of naming a corporate trustee. A corporate trustee generally has an unlimited lifespan – it does not get sick or incapacitated – potentially providing continuity for multiple generations of beneficiaries. Like individual trustees, corporate trustees can provide professional accounting, reporting, and ongoing communication to the beneficiaries. Corporate trustees may be in a better position to remain objective and impartial to beneficiaries since corporate trustees are not generally related to the beneficiaries of the trust. Corporate trustees are regulated and monitored by government agencies, requiring adherence to the rules and regulations governing trust administration. With a strong knowledge of the administrative complexities of trust management, they can devote their full time and attention to the business of trust services. And finally, they can provide, or provide access to, professional asset management.
Thanks again for joining us today. Please contact your Wilmington Trust advisor if you have any questions about what should be considered when selecting a trustee. We would be glad to help. See you next time!
This podcast is for general information only and is not intended as an offer or solicitation for the sale of any financial product, service, or other professional advice. The information in this podcast has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed. The opinions, estimates, and projections expressed are subject to change without notice.
Note that estate planning strategies require individual consideration, and there is no assurance that any strategy will be successful. Note that a few states, including Delaware, have special trust advantages that may not be available under the laws of your state of residence, including asset protection trusts and directed trusts.
Diversification does not ensure a profit or guarantee against a loss. There is no assurance that any investment, financial, or estate planning strategy will be successful. Past performance cannot guarantee future results. Investing involves risk, and you may incur a profit or a loss.
Investment products are not insured by the FDIC or any other governmental agency, are not deposits of or other obligations of or guaranteed by Wilmington Trust, M&T Bank, or any other bank or entity, and are subject to risks including a possible loss of the principal amount invested.
Wilmington Trust Emerald Family Office & Advisory® is a registered trademark and refers to wealth planning, family office, and advisory services provided by Wilmington Trust, N.A., a member of the M&T family. Wilmington Family Office is a service mark for an offering of family office and advisory services provided by Wilmington Trust, N.A. Wilmington Trust is a registered service mark used in connection with various fiduciary and non-fiduciary services offered by certain subsidiaries of M&T Bank Corporation.
Copyright 2024 M&T Bank Corporation and its subsidiaries, all rights reserved.
Equal Housing Lender. Bank NMLS #381076. Member FDIC.