How to Choose a Trustee to Help Manage Your Affairs
We cannot say it enough – trusts are at the core of what we do. We often are asked about trustee selection. We hope our beliefs and recommendations help make your decision easier.
Howland Capital’s Five Core Beliefs When It Comes to Choosing a Trustee
1. Time, Interest, Knowledge, Loyalty and Discipline are necessary ingredients. A successful trustee possesses all of these attributes in order to effectively administer a trust and make decisions on behalf of the creator (also known as a grantor, settlor, trust maker, or trustor). Without (or without enough of) these capabilities, a trustee will have a harder time carrying out your wishes.
2. Experience matters. The more experience a trustee has, the better. Ideally, we believe you would want a trustee that has some legal and investment experience to bring to the table. In addition to that, your trustee should be able to tend to the beneficiaries with impartiality while also remaining true to the intentions of the trust and the creator. While a trustee is often one person, choosing someone with a team and an infrastructure around them can make a huge difference.
3. Location matters. Trustee duties can often include controlling trust property, enforcing trust claims, defending the trust against loss, segregating trust property, interacting with beneficiaries and other interested parties, and more. While these duties can be conducted remotely – as we have all learned in the last two years – choosing a trustee who understands and is generally accessible in the region where trust property is located can be helpful.
4. Everyone has an estate plan. Whether you like it or not, the state court will dictate your estate plan if you do not have one yourself. Choosing a trustee is a very important aspect of estate planning, along with having a Will. Taking the time to make decisions and plan for the long term will save you, your estate, and your family from decisions the courts may make in your absence. We also recommend a periodic review of estate planning documents.
5. It is all about trust. As the title implies, trustees need to be dependable, capable, and loyal. Credentials are great, but in the end it all comes down to placing trust in the trustee’s ability to carry out the trustee duties in keeping with the grantor’s wishes and for the benefit of the trust’s beneficiaries.
Our Ten Recommendations for Choosing the Right Trustee
1. Choose someone you trust. This should go without saying, but it is necessary to mention. Consider choosing more than one trustee.
2. It is okay to be selfish. Do what is right for you, your family, and your affairs. Do not feel obligated to choose a trustee based on someone else’s expectations and assumptions. There is also no need to include all family members in the trustee role (in fact, we recommend against it!) but it IS important to communicate to your family who will fulfill different roles in your estate plan.
3. Think twice before naming a corporate trustee. In today’s world of mergers and acquisitions, corporate restructurings, and constant regulatory changes, you should think twice about naming a corporation as trustee. Name a person, and if they are part of an organization, be sure you understand the long-term vision of the organization. Those organizations that are committed to remaining independent, with a strong culture of long-term succession planning, are ideal because you can feel confident your plans will be implemented as desired.
4. Make a plan that is built to last. You may be inclined to ask a close friend or relative to be a trustee, but what if they are your age or older than you? What if they do want to fulfill the role? Identifying a trustee who is committed to serve and can do so for the longer term is important. It is also important that you name one or more successor trustees. Some people choose to name a child or children as successor trustee(s) once they reach a certain age, which can work very well. Choosing a trustee take a lot of thought, discussion, and planning. Put a plan in place that can last.
5. Ask your chosen trustee(s) if they agree to serve. Simply naming someone as a trustee does not obligate them to fulfill the role. Named trustees can always decline (or disclaim) the role, or resign from it. Eliminate future surprises by speaking with prospective trustees before your trust document is finalized.
6. Have a back-up plan in place. You may have the perfect person in mind to serve as trustee for your affairs. However, life happens. Have a Plan B. This is another good reason to consider choosing more than one trustee.
7. Ask for references. Do not worry about offending a prospective trustee. Learn about others’ experiences with this person. This ties back to #1 – “be selfish.” Probe others on the trustee’s strengths and weaknesses. It is better to learn now than to choose the wrong person.
8. Understand trustee fees. Be sure to discuss with the trustee how they plan to be compensated, and feel free to include guidelines in your trust document. Transparency is important and a good trustee should not shy away from discussing this issue.
9. Share your intentions / goals with your selected trustee. The more a trustee understands you, and the more they make the effort to get to know you and your intentions, the better you will be served. It is easy to agree to be a trustee, but it can be difficult to fulfill the role well. Choosing the right trustee, and working to be sure your plans are understood significantly increases the likelihood that things will go as you planned. A letter of instructions from you as the grantor can help to clarify your intentions.
10. Run a simulation. Once you have estate plans drafted and a trustee or trustees chosen, discuss a few “what if” scenarios with your financial adviser. Make sure and your trust(s) and other estate documents serve their intended purposes. Ask yourself: “Can my trustee(s) carry out my wishes based on what’s written in my estate plan”? Estate planning is often an iterative process. Double-checking the flow of your assets, in partnership with your financial adviser and the trustee if possible, will help to ensure the right plans are in place.
Background on Howland Capital: Howland Capital is an independent registered investment adviser offering a customized approach to wealth management for individuals, families, foundations, and institutions. Approximately 2/3rds of the assets we mange are held in trust and we act (or support) as trustees on the large majority of these trusts. Our team is focused on the long term, to ensure that wealth acts as a positive influence in our clients’ lives. We are committed to remaining independent in order to provide the stability and continuity that our clients deserve.