Choosing a Trustee: Family Trustee, Financial Advisor or Professional Fiduciary?

Sitting down and discussing estate planning for the first time, you may have determined that a trust is the best estate planning vehicle to meet your needs. You may not have considered, however, who you want to serve as your trustee. Determining who your beneficiaries will be and how to distribute your assets to them is often a straightforward decision. Choosing who will carry out your wishes and trusting that person to execute your wishes exactly as outlined, can be more complicated.

When it comes to who should serve as your trustee, there is no right answer. You should, however, understand your options. After all, your chosen trustee has massive responsibilities and personal liability to your trust’s beneficiaries.

Being a trustee means accepting specific duties, including maintaining impartiality between the interests of the current and future beneficiaries, properly accounting for all beneficiaries, prudently investing trust funds, and managing trust property.

Generally, any qualified person or entity can serve as trustee. Many of our clients choose between one of these three types of trustee: a family trustee, financial advisor, or professional fiduciary. Each has their pros and cons, so let’s break them down.

Family Trustee

The selection of a family member as trustee is natural for many clients, as this person may have more intimate knowledge of their wishes, which could allow them to act in a more comprehensive capacity when it comes to trust administration. It is likely that the grantor and their chosen family member share common values, a sense of the family legacy, and an understanding of the goals and objectives of the trust. Furthermore, a family member will have inside knowledge into the dynamics of the family, which will help them navigate any emotional issues that may arise in the future. Finally, a family member may forego a fee while serving as a trustee, whereas a professional will charge for their services.

Unfortunately, in many situations, a family member may lack the experience and skills to successfully administer and carry out the client’s wishes. Even if a family member does possess this skill set, they may lack the time, focus, or motivation to effectively do so. Naming one family member over another can also create hurt feelings, and the management or mismanagement of trust assets can also lead to serious family strife, and even litigation.

Financial Advisor

Just as a family member has inside knowledge into an individual’s wishes, financial advisors often have unique relationships with their clients. A financial advisor may be very well suited to serve as a trustee since they understand their client and estate nearly as well as the client themself. These are individuals who have been assessing the needs of their clients and advising on decisions regarding investments, tax laws, and short- and long-term goals.

The potential downside of having a financial advisor act as trustee is that they may not have enough time to devote to the administration of a client’s trust. They will also charge a fee. Make sure that, if you name a financial advisor as trustee, they have insurance or a bond that would cover any breach of fiduciary suit that may be brought against them.

Professional Fiduciary

A professional fiduciary is a person whose job it is to make decisions on behalf of another individual, often in a legal or financial capacity. Professional fiduciary roles are common in estate planning, and one of the most common roles for a fiduciary to step into is that of trustee. The expectation is that these individuals provide the utmost level of care throughout their services. They have certifications and experience, which can be crucial when dealing with complex financial matters.

Some cons to hiring a professional fiduciary as a trustee is that there is no personal connection between fiduciary and client. In most situations, finding a professional fiduciary takes time and research. Like a financial advisor, they also take a percentage of the trust’s assets as an annual fee.

Contact the Hailey-Petty Law Firm

At the Hailey-Petty Law Firm, our primary goal is to ensure the success of your estate plan–and that means helping you through the process of choosing a trustee and supporting your family trustee through the trust administration process when the time comes. Schedule a free 30-minute consultation with us to learn how we can help you achieve peace of mind, and set your loved ones up for success in the future.