Do I Need a Trustee?

    Whether you own a family business or serve as the head of a large financial estate, it’s never too early to start thinking about the realities of the inevitable transition that will take place. Setting a plan in place now and continuing to adapt and evolve it as circumstances change, will ensure that your company, family, wealth, and legacy are properly safeguarded. As multigenerational, multifamily wealth management advisors, we at Whittier Trust encounter many periods of transition in the lives of our clients. There are many considerations when preparing for a transition, but the question we receive over and over again is, “do I need a trustee.” The simple answer is yes. The benefits of having a trustee far outweigh any potential drawbacks, but it’s important to understand the function of a trustee and how they can impact your estate and family.

    What is a trustee?

    First of all, what is a trust? Fundamentally, a trust is an agreement in which you transfer assets to be managed and distributed by someone else according to your instructions. As trusts legally own all of the assets under their purview, they protect a family’s assets from taxes, predatory third-parties and internal divisions. The trustee will assume legal ownership, responsibility, and liability of the estate after the execution of the trust. In the case of a living trust, a trustor may be inclined to take on these duties for themselves. However, it’s in the best interests of a trustor to establish a trustee to ensure all assets are looked after in the event of their death or incapacitation, events which have a tendency to occur unexpectedly.

    Trustees take on a number of duties related to the trust. The first thing they must do is collect all the trust assets and confirm appropriate titling in the name of the trust. They are then responsible for managing the trust’s assets and are legally required to manage those assets in a way that fulfills the purposes of the trust. This involves meeting fiduciary standards of the trust and exercising appropriate discretion where required. Trustees will also have to prepare terms and pay taxes on behalf of the trust and make required and discretionary spending to beneficiaries. All these actions require a trustee to maintain complete and detailed documents and records to make appropriate financial decisions and avoid legal, tax, and family issues.

    Should my trustee be a member of the family? 

    It’s not uncommon to make a family member the trustee, but there are a few drawbacks to doing so. Spouses may be incredibly trustworthy (no pun intended) and responsible, but they’re not always experts in the intricacies of dealing with a trust or even the family business itself. A spouse may be the same age as the trustor, which, if the trustor just died, is likely not ideal for longevity or stability. A spouse may also want to remarry, which may cause some tension amongst the family if they want to make provisions for new members of the family. It’s important to note that there exists a lot of litigation involving the children of a trustor suing a stepparent named as a trustee. Children are also frequently named as trustees, but, before handing the reins over to the next generation, consider that they do have their own life. Being named a trustee as a member of the family can be a recipe for family tension as managing the affairs of the family, especially a large family, can be hard even before the added layer of legal liability.

    An institutional trustee, such as a trust management company who specializes in family office services and multigenerational wealth management, avoids these problems entirely. Working with a third party as a trustee adds a necessary degree of impartiality to all decision-making, and a lawyer guarantees professionalism in handling the details of executing and managing the trust.  If shares of the family business are also placed into the trust, voting rights on behalf of the trust fall into the responsibility of the trustee. An institutional trustee will ensure that a vote is cast in the best interests of the trust, the family, and the family business and not based on any personal desires or ambitions. A well-staffed institutional trustee can be more cost-efficient than individual trustees who need to rely on outside counsel like legal and CPAs. They also typically assemble a team of experts with relevant backgrounds to the specific family and family business situation.

    A trustee is an integral piece of any successful family wealth or business transition. They can also be a key, trusted counsel to families with large estates, providing a source of stability, continuity, and guidance across generations. Potential legal fees, if a family situation goes sideways, will always outweigh the expense of working with an experienced and professional team. Consider starting a conversation with a trust management company sooner rather than later. It helps to have a plan in place in the face of the unexpected, and the longer a family works with an institutional trustee, the better the relationship they will have with that trustee.

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