Key considerations in trustee selection

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When clients start to think about estate planning, they tend to focus heavily on so-called "substantive" provisions that relate to who receives what property. However, if your estate plan establishes one or more trusts, then who you choose as trustee(s) is equally important to the success of your estate plan.

As a refresher, a trustee holds legal title to trust property, but utilizes it for one or more named beneficiaries, in accordance with the language of the trust instrument. In carrying out this role, the trustee will usually be responsible for, among other duties, investing trust assets, filing income tax returns for the trust and coordinating distributions to beneficiaries.

Choosing a trustee

On a broad level, there are three main options when choosing a trustee:

1. Family member
2. Advisor
3. Corporate fiduciary

Let’s explore each option in more detail:

Family member: A family member will presumably have a good understanding of your wishes, which is very helpful for a trustee. However, as noted above, trusteeship also involves matters like investments and tax returns. Does your family member have the skills and the time to perform these jobs? It’s worth noting that a trustee may delegate some of this work to an outside expert, such as a portfolio manager or an accountant, but the responsibility (and liability) for their performance still rests with the trustee.

There are a couple of situations where a family member is affirmatively NOT the best fit as trustee:

• If there is tension between family members. For instance, if your daughter and son do not get along well, it’s a mistake to name your son as trustee of your daughter’s trust. (The same may be true of your son from your first marriage acting as trustee of the trust benefiting your third spouse.)
• If a family member is too busy. Acting as trustee can be time-consuming. It can be a mistake to choose a family member as trustee without taking into account what else is on that family member’s plate. Your daughter may be incredibly impressive (e.g., a brilliant doctor raising three young children), but is she really in a position to take on another role?

Advisor: An advisor, such as an accountant or attorney, can be a good choice to act as trustee, especially if they have worked with you for many years and understand your financial and family situation. That being said, this can be an issue if the advisor is similar in age to you. Will the advisor want to act as trustee when the time comes?

If you do wish to name an advisor as trustee, you should confirm that they are allowed to act in that capacity, as some law firms prohibit their attorneys from acting as trustee or executor. Even if they can act, you should make sure you understand how the advisor will charge for their work. For instance, if your estate planning attorney bills their time at $1,000 per hour, will they charge that same rate as trustee, even for work that isn’t legal in nature?

Corporate fiduciary: A bank or trust company, such as Fifth Third Bank, can act as your trustee. Obviously corporate f fiduciaries have the skill set to work in this capacity, although they do not have the same insight into your particular family situation as a family member or longtime advisor. (Note that this can be a positive: In a family whose members don’t get along, a corporate fiduciary may be seen as a unbiased third party.)

In some cases, clients may be reluctant to use a corporate fiduciary because of fees. Therefore, it’s important to understand how the bank or trust company charges for its services, and what is—and what is not—included in their fee.

Considering more than one trustee

When assessing the above options, you may wish to consider whether you want to have a sole trustee (who would act alone) or co-trustees. This can allow you to have the "best of both worlds." For instance, you could name your daughter and Fifth Third to work together as your trustees, which would allow your daughter to weigh in on family-related issues while Fifth Third handles investment, tax and other administrative responsibilities. The key is to decide how disagreements between trustees should be handled—and to include language memorializing this decision in your trust instrument.

Final thoughts

We recommend you consider the following factors when selecting a trustee:

• Communication: Make sure you tell your chosen trustee that you plan on naming them for this important job. It also makes sense to communicate your choice to your beneficiaries.
• Education: If the trustee doesn’t understand what the job entails, make sure your Fifth Third advisor—or another professional—explains it to them.
• Flexibility: Ideally, your trust document should name both initial and successor trustees. It’s a good idea to work with your estate planning attorney to make sure the language in your trust instrument is flexible enough to weather an unpredictable future. Two examples:
  • If you name your child as trustee, consider naming a corporate fiduciary as successor in the event that the child passes away or wishes to resign from the position.
  • If you name a corporation as trustee, include language allowing the beneficiary to remove the named corporation and appoint another corporation (or even another individual) to act in their place as trustee.

To start a conversation, contact your Fifth Third Private Bank advisor.