Planning for the transfer of wealth to younger generations is one of the most challenging processes facing successful families. To paraphrase Warren Buffett, I will leave my children enough so they can do anything, but not so much that they can do nothing. What is “enough” or “too much” is unique to each family. A proper estate plan is critical to ensuring that the success you’ve worked so hard to build over your lifetime is passed on in a way that benefits your family and supports the values you want to leave behind when you’re gone.
Most families of wealth choose to leave some, or all, of their wealth to future generations in trust. Trusts can be arranged in many ways and can specify exactly how and when the assets pass to the beneficiaries.
Should you choose to use a trust, then you will need to choose a trustee. A trustee is a person, board, or corporation to whom you give the duty to oversee the administration of your trust after you’re gone. They are tasked with many responsibilities, including making decisions about distributions to your beneficiaries and ensuring they meet the guidelines you defined in your trust documents. This can be a very challenging job, so it is important to select the right trustee to carry out your wishes.
Naming a family member or friend to serve as your trustee is a natural and very common solution. The relationship is personal, and they may be well suited to understand the needs of the beneficiaries. Unfortunately, most individual trustees lack the experience, time, or investment background to manage the increasingly complicated tax and administrative duties associated with the modern trust. It will also fundamentally change the personal relationship between the individual trustee and the beneficiary.
Appointing a corporate trustee, such as a bank, can help you avoid the pitfalls often associated with an individual trustee, because corporate trustees have deep expertise that individual trustees often do not. Plus, a corporate trustee is subject to internal audits and close scrutiny by both federal and state regulatory agencies, which ensures the protection of the trust beneficiaries.
For some families, partnering an individual trustee with a corporate trustee may be a prudent solution. Acting together, the individual trustee can bring the knowledge of the personal relationships, while the corporate trustee can provide the safeguards needed for making sound investment and administrative decisions.
Regardless of the direction you take, here are three rules of thumb as you consider which trustee is right for you and your family:
1. No two snowflakes are exactly alike.
A trustee must be prepared to work with beneficiaries of vastly different character and levels of sophistication. Children, grandchildren, and other beneficiaries will all take different paths in life. While some might grow up to be business and community leaders, others might grow up to be Paris Hilton.
As an individual trustee, it can be challenging to balance the needs of the individual trust beneficiaries with the terms of the trust itself. It is important to recognize the differences between beneficiaries and administer the trust in a way that both supports their needs and satisfies the intent of the trust.
2. Sibling rivalry does not end in childhood.
I call this the Smothers Brothers Effect, aka “Mom always liked you best.” Most of us have experienced the reality that, at the death of a surviving parent, long-festering sibling and family dysfunction surfaces.
Taking the time to explain to your trustee and your beneficiaries what will happen when you are gone, before you’re actually gone, can make all the difference in preserving family harmony. It may seem uncomfortable, but it is one gift you can give your family that is far greater than money.
3. You get what you tolerate.
Working with a beneficiary who depends solely, or significantly, on trust distributions for their support can be a challenge for any trustee.
Beneficiary: “I need $10,000 from my trust for a family vacation to Europe.”
Trustee: “I am glad that you called to let me know. When are you planning to go?”
Beneficiary: “Last month. I just emailed you the AmEx bill. Oh, and it is due tomorrow.”
Trustee: “Not again…”
A trustee must be prepared to be the “bad guy” when beneficiary behavior runs counter to prudent trust administration. Whether you use a professional trustee or Aunt Joan, someone has to be the one to say no.
As you contemplate whether to go with an individual trustee, a corporate trustee, or both, remember, no amount of planning can substitute for great communication. Taking the time to properly set up your estate and letting your loved ones know about your wishes will pay dividends for generations to come.
If you have any questions about reviewing your estate plan and/or appointing a corporate trustee, contact Senior Trust Officer, Jim Montague, at First Western Trust, at Jim.Montague@myfw.com.