Who Should Run the Family Trust?

When a trust is created, most often the creator turns to a trusted friend, relative, or confidant to oversee it. This makes a lot of sense to most people because the purpose of a trust is often personal in nature, and the creator wants someone to run the trust that has been a part of their life for many years. However, things like friendship, family drama, and emotions can all complicate the decisions that a trustee makes for a family trust in regards to carrying out the terms of the trust.

Use of Non-professional Trustees

The use of non-professional trustee has been growing as more people set up trusts to operate during their own lifetimes. A lot of these creators do not believe that they need to hire a professional because they can keep an eye on the trust while they are still alive. People are creating lifetime trusts for a variety of reasons. Many are looking ahead at minimizing estate taxes if their assets are above the $5.43 million exemption limit ($10.86 million for a couple). Others are attempting to minimize the level of current state taxes on their assets or gain financial control of their legacy.

Benefits of a Professional Trustee

Hiring a professional trustee to run a family trust can provide a lot of benefits to the creator and beneficiaries. For one, professional trustees are experts at running trusts and knowing how complicated, long-term trusts work. This is particularly important if your family trust is designed to last for more than one generation.

Another benefit of a professional trustee is that the person is removed from any potential family drama or biases. When a trustee controls how much money a beneficiary is entitled to receive, conflicts inevitably arise. If a professional trustee is handling the decision, family prejudice, jealousy, and bias can be eliminated as potential sources of conflict.

Having a personal trustee can also alleviate certain legal issues, as well. For example, a professional trustee is more apt to pay attention to when changes need to be made or when distributions are supposed to be made to beneficiaries. When these things don’t occur, a lot of legal drama can result.

Potential Downsides of a Professional Trustee

There are also potential downsides to hiring a professional trustee to run the trust. First, professional trustees typically charge higher rates than a family member or friend would charge to manage the trust. It is not unusual for a professional trustee to charge as much as 0.25% per year to operate the family trust. In addition, there are sometimes concerns that a professional trustee is looking out more for the bank’s interests than those of the beneficiary.

In order to alleviate these issues, some family trusts are now using a combination of non-professional and professional trustees to run the trust. Co-trustees are designated to both remain impartial in the management of the trust while still being attuned to the individual needs and backgrounds of the beneficiaries. Regardless of what type of trustee is chosen, experts agree that all trusts should include the proper documentation to remove and replace a trustee if the arrangement is not working out.