Choosing the responsible party to administer your estate or settle your trust after you’re gone is among the most important decisions anyone will make. This person will have responsibility to ensure your wishes are carried out. The most obvious (and common) choice is to name one’s spouse or life partner or a responsible adult child or relative. Sometimes a close friend can be a good choice as well.
Other choices include your attorney, CPA or local bank or trust company. All of these are considered ‘professional’ fiduciaries and charge a fee for their services. The advantage of having a professional fiduciary is that you have a person or entity who can work with all the ‘players’ (meaning beneficiaries) in a neutral way. We call this the ‘Switzerland’ option. By having a successor trustee, for instance, who is not and never will be a beneficiary, discretionary decisions will likely be more fact based and less emotional. There are other reasons people sometimes consider having a professional fiduciary:
- There is no other clear responsible person likely able to do the work;
- There are unique issues with some or one of the beneficiaries such as a person with a history of substance abuse or mental health issues;
- There are concerns/need for independence due to ‘rocky marriages’ or potential creditor claims.
In addition, there are certain types of Irrevocable Trusts that require an independent trustee for tax and other reasons. In these cases, a full conversation about the available options is always advised. We prefer to be considered only on three conditions:
- Typically, we want a majority of the beneficiaries to be able to ‘remove and replace’ the named trustee – so that no one is ever stuck working with someone (or some firm) with whom they don’t get along;
- We (as a law firm) do not and will not manage the actual cash and securities held in the trust – but instead, want to have the authority to delegate the investment management to a Registered Investment Advisory firm;
- We also always want the ability to resign if we don’t feel we are able to be effective with the beneficiaries.
All that said, it is increasingly clear that having an independent fiduciary familiar with the estate plan and how it was intended to work enhances the likelihood that the decedent’s wishes will actually be carried out as intended.
In considering who should be your successor trustee and/or executor (now termed “Personal Representative” under your will) we suggest considering the following factors:
- Who are the beneficiaries and what are the assets? Depending on the complexity and/or family dynamic, do you need a ‘Switzerland’ option?
- What are the costs of having a professional trustee?
- What are the pros and cons of a person (e.g. the attorney) vs. an institution?
- What will work best for the loved ones once you are gone?