Five Reasons Why Uncle Bill May Not Make a Good Trustee

If you plan to create a trust for the benefit of your children, choosing the right trustee is critical. Initially, you may think that a family member (let’s call him Uncle Bill) will be the best choice. After all, Uncle Bill understands your children’s personalities and varying needs, and since he has always been frugal, he will surely keep the costs of administering the trust down.

However, there are reasons why Uncle Bill may not be the best choice. For example, he has his own busy life and may not be equipped to handle all of the trustee obligations on his own. He may need to hire legal, investment, and tax advisers to ensure that the trust is managed, invested, and distributed as you intended. These expenses have the potential to be the same (and, on rare occasions, more) than the fees charged by a corporate trustee, such as a bank or trust company, who can meet all of the fiduciary obligations of a trustee under one roof for one comprehensive fee.

Below are five reasons you may want to consider choosing a professional or corporate trustee for your trust instead of Uncle Bill:

1. Professional and corporate trustees do not have a potentially disruptive personal life. A professional or corporate trustee does not become ill or die, marry or divorce, have children or grandchildren, go on vacation, move abroad, or have day-to-day distractions that could get in the way of properly administering your trust. The named professional or corporate trustee will likely be a bank or private trust company. If the person designated by the bank or trust company to act as trustee is unavailable, someone else from the bank or trust company can step in without court or beneficiary involvement.
2. Professional and corporate trustees are unbiased. A professional or corporate trustee will not favor one of your children over another (unless that is what you intended) and will act in an unbiased manner to make distributions that benefit both the current and remainder beneficiaries. They are not part of your family and therefore will not be tempted or swayed by emotion or family drama.
3. Professional and corporate trustees avoid conflicts of interest and self-dealing. Professional and corporate trustees will not sell the family company or vacation home (that you intended to eventually go to your grandchildren) to themselves or to a friend at less than fair market value. Any sale or other transfers will be made according to the stated wishes in the trust and should not personally involve the professional corporate trustee.
4. Professional and corporate trustees invest appropriately. Professional and corporate trustees are typically more skilled at managing and investing assets, with access to experienced financial advisers and divestment investment strategies. For example, a professional or corporate trustee may better understand that, subject to any specific instructions in the trust, they should not invest trust assets (accounts, property, etc.) in real estate or a high-risk hedge fund but should instead diversify the portfolio to benefit both the current and remainder beneficiaries (the ones entitled to benefit from the trust after the current beneficiary).
5. Professional and corporate trustees have expert knowledge. A professional or corporate trustee will not need to hire a slew of attorneys and accountants to interpret the trust agreement and will stay current on changes to the laws governing trusts, fiduciaries, and taxes.

Final Considerations

From managing the current and remainder beneficiaries’ requests and expectations and providing them with periodic reports regarding trust assets, liabilities, receipts, and disbursements, to prudently investing trust assets and preparing and filing all required tax forms, a trustee’s duties and responsibilities are extensive.

A professional or corporate trustee may be a better option than Uncle Bill to manage your trust. Please contact our office if you have any questions about selecting a trustee – family member or corporate. We’d be happy to assist you in this critical selection process. Call Mark Tebelius at 651-738-3433.