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If you are thinking about establishing a trust, you will also need to give considerable thought to selecting a trustee. Perhaps you are considering naming a family member. Or, you may be wondering whether it would be wiser to designate your attorney or another trusted professional. In addition, you may also be aware that a bank trust department can act as a trustee. As the grantor, you should choose a trustee with care. Here is some information on the role of a trustee, and the benefits and tradeoffs of the different choices available to you.A trustee is a person or an institution selected to administer a trust. A trustee's role is to comply with the terms of the trust and fulfill its objectives. In selecting a trustee, you must weigh many personal, family, investment, and business concerns. For instance, an important consideration is the size and complexity of the trust. Corporate and professional trustees possess the accounting, tax planning, and investment experience necessary to manage large, complicated trusts. Bank trust departments offer the benefits of greater portfolio diversification, although they may tend to invest more conservatively, which may or may not appeal to you. On the other hand, small trusts generally do not warrant professional management.Duration is another significant concern. A trustee's responsibilities often span one or more generations. Corporate fiduciaries have the advantage of perpetual life (although the individuals administering the trust may change over the years). This longevity also allows them to better fulfill the recordkeeping and reporting requirements of federal and state governments and the supervising court. If you have decided to appoint only individual trustees, consider designating co-trustees or successor trustees to address longevity concerns.
Advantages of Professional Trustees Corporate trustees have other advantages, as well. Since they are more likely to remain in the same location, they may be more likely to stay in close proximity to beneficiaries. They may also be more impartial in considering beneficiaries' needs than family members, who may face conflicts of interest. Also, corporate and professional trustees are held to a higher standard of professional conduct than nonprofessionals. Of course, professional service comes with a price. Many grantors of small trusts choose nonprofessional trustees to avoid high corporate fees.
Benefits of Family Members When a personal touch is needed, family members, or other nonprofessionals who know the family, may offer special advantages as trustees. They generally have the greater sensitivity and flexibility required to support the special needs of a beneficiary, such as a handicapped child, which may be the primary purpose of a trust. A family member or business associate may also be the preferred choice if you are leaving a business in trust. Corporate trustees generally do not run businesses; they sell them and invest the proceeds.
Best of Both Worlds Often, a combination of professional and nonprofessional trustees may work best. Corporate or professional trustees provide trust management expertise, while family members or other nonprofessionals may be better able to understand and respond to the changing needs and circumstances of beneficiaries.It is best to consult a qualified legal professional when selecting a trustee, especially since an inappropriate choice of trustee could invalidate a trust or have serious tax consequences.
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