When people hear the term “estate planning,” many just tune out, assuming it’s something only the hyper-wealthy or elderly have to worry about. But it’s never too early to start estate planning, and it isn’t contingent on having a certain level of wealth or assets.
Practically everyone should have a basic estate plan that details how their assets will be distributed to their heirs after they die. For some, a last will and testament appoints an executor to settle your estate, passing assets to your beneficiaries. For many reasons, your estate attorney may recommend a trust be created for your estate plan. If so, a critical aspect of an estate plan is selecting a trustee to administer your estate for the benefit of your beneficiaries according to your wishes. Many of the responsibilities of a trustee would be carried out by an executor if no trust is created. Sometimes your choice of trustee is the same as your executor, so the responsibilities are shared by both roles.
The Trustee’s Responsibilities
A trustee usually handles a wide range of responsibilities. These may include, but are not limited to:
- Making sure assets are distributed according to the terms of your estate plan
- Managing trust assets on behalf of beneficiaries
- Paying any outstanding bills or taxes that might be due
There are two main types of trustees:
- Individual trustees: Usually a close friend, family member, or business associate
- Corporate trustees: Typically, a bank, trust company, or other fiduciary
Given the importance of the role, a tremendous amount of thought should go into which type of trustee you choose.
Many people reflexively decide on an individual trustee because they believe that someone they’re close to and who knows them well is the best choice for this critical role. However, it’s important to realize that being the trustee of an estate can be complicated and time-consuming. This is especially true for a large and complex estate — or for any size estate when the chosen individual has limited knowledge or experience serving as an executor or trustee of an estate.
Also, the executor and/or trustee of your estate should carry out your estate planning instructions and legal requirements objectively, without letting emotions or personal feelings get in the way. This can sometimes be difficult for close family members and friends.
Benefits of a Corporate vs. Individual Trustee
If there is not a close friend, family member or business associate who you believe is capable of fulfilling the role of trustee competently and objectively, you might decide to designate a corporate trustee. Many banks and trust companies offer professional estate settlement services — you should start by talking to your current bank or trust company about this.
When you designate a corporate trustee, you will benefit from the institution’s experience in estate administration as well as professional investment management. You could also minimize the possibility of family dynamics coming into play, possibly obstructing the fulfillment of your wishes. A corporate trustee executes the terms of your estate plan objectively and without emotion.
Additionally, corporate trustees are aware of the strict fiduciary regulations governing a trustee, so decisions are made in the best interest of your estate. A professional trustee often taps into a network of other professionals such as CPAs and attorneys who can offer specialized assistance if needed. They also typically have experience in how to invest trust assets based on the expected lifespan of the trust balanced with the expectations of the beneficiaries of the trust.
Even with these benefits, designating a corporate trustee isn’t always the best choice. A corporate trustee charges fees for their service. If your estate is relatively simple and doesn’t include complex trust arrangements — and if you have a close friend, family member or business associate who is willing and able to serve as your trustee — then designating an individual trustee could be a more cost-efficient option. Please review your family’s circumstances with your financial advisor and an estate attorney to develop a proper estate plan.
A Hybrid Trustee
There is a third option that might make sense in some circumstances: designating a corporate trustee and an individual to serve as co-trustees. Your co-trustees would divide estate settlement responsibilities between each other.
For example, the individual trustee could handle more personal and routine tasks like paying outstanding taxes and bills, while the corporate trustee handles more complex administrative, management and investment responsibilities. This option can be chosen through Personal Capital’s trust partnerships as well.
Selecting a Trust Company with Personal Capital as Trust Investment Manager
Personal Capital partners with national trust companies on the Pershing Platform to provide our clients with a professional trustee’s fiduciary expertise in tandem with Personal Capital’s investment management. To learn about this opportunity, please contact your Personal Capital Financial Advisor.
If you haven’t designated a trustee for your estate, now is a good time to think about your options and make a decision. This will help ensure that your wishes are fulfilled after you’re gone while sparing your loved ones from additional uncertainty and turmoil during this difficult time.
To learn more about Personal Capital’s services, contact one of our financial advisors.
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