Many of my clients choose to incorporate a trust agreement into their estate plans. One of the most important decisions they must make when creating a trust is who to appoint as the Trustee of the trust. When you create a trust, you can appoint anyone you want to be the Trustee; however, I frequently counsel my clients to consider appointing a professional Trustee. Let me explain some of the benefits of appointing a professional Trustee.
What Does a Trustee Do?
A trust is a legal arrangement that allows the creator of the trust (the “settlor”) to appoint someone (the “Trustee”) to protect and manage assets intended for a third party (the “beneficiary”). A Trustee has a fiduciary duty to the trust and the trust beneficiaries, meaning that the Trustee has a legal duty to act in the best interests of the trust beneficiaries. A Trustee is responsible for administering the trust using the terms and provisions found in the trust agreement. Typically, a Trustee is responsible for investing trust assets, keeping detailed records of trust business, and communicating with beneficiaries as well as resolving trust conflicts, paying trust taxes, and distributing trust assets. The difficulty level of a Trustee’s duties will depend on factors such as the number and value of trust assets, the complexity of the trust terms, and whether the trust becomes involved in litigation.
What Is a Professional Trustee?
The Settlor of a trust is free to appoint any competent adult to be the Trustee of a trust; however, it is usually best to consider appointing a professional Trustee. A professional Trustee can be a bank, trust company, attorney or other entity that is not a beneficiary of the trust and that oversees the administration of the trust in a professional capacity. Whether you appoint a professional or a non-professional Trustee, a Trustee is entitled to a reasonable fee for administering a trust. Usually, a professional Trustee will charge a percentage of the value of the trust assets. For example, a professional Trustee might charge 1.5 percent of the value of the trust assets for a given year.
Benefits of Appointing a Professional Trustee
Like many people, you may be resistant to the idea of appointing a professional Trustee because it seems impersonal, or you are concerned about the cost involved. Before discounting the idea altogether, consider some important benefits of appointing a professional Trustee, such as:
- Protects family members from pressure and conflict. When a family member is the Trustee, that individual may feel tremendous pressure from the rest of the family to succeed at administering the trust. Because family members are likely beneficiaries of the trust, it can also create conflicts within the family. A professional Trustee removes both the pressure and the risk of conflict.
- Less investment risk. A professional Trustee is just that – a professional. As such, the risk of poor investment decisions that lead to the loss of trust assets is significantly diminished when you appoint a professional Trustee.
- Continuity. If something happens to your non-professional Trustee, a successor Trustee must take over. The new Trustee has not been part of the administration of the trust and must now effectively start from scratch. A professional Trustee, however, typically has an entire office working on the administration of the trust and someone specific lined up to take over as the successor Trustee should it be needed.
- Accounting and record-keeping. There is a significant amount of accounting and record-keeping involved in the administration of a trust. A mistake in either could cost the trust money, effectively meaning that the beneficiaries lose money. A professional Trustee has a system in place for accounting, record-keeping, and the payment of taxes which greatly reduces the likelihood of a costly mistake.
Contact Chapel Hill Trust Attorneys
If you have additional questions or concerns about the benefits of appointing a professional Trustee, please contact the Chapel Hill Trust Attorneys at Clarity Legal Group by calling us at 919-484-0012 or contact us online.
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