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Trusts are flexible estate planning tools that allow people to have their assets used for a specific purpose or in a specific way both during their lifetime and after they have passed on. This is accomplished through the use of a trustee, who manages the assets based on the directions in the trust document for the benefit of some third party, such as a child of the person who created the trust. Of course, this means that one of the most important decisions that a person setting up a trust needs to make is who they want to be their trustee. There are a variety of considerations that can go into picking the right person for the job, but first people should understand the types of trustee available.
Types of Trustee
In general, there are two types of trustee that a person creating a trust can choose between: a private trustee and a corporate trustee. Private trustees are generally friends or relatives; people that either the person creating the trust or the person benefiting from the trust knows and believes are responsible enough to manage the trust’s property. Conversely, corporate trustees are professional institutions that will manage trust property, usually for a fee. These professionals come with the benefit of years of experience and a specialized understanding of the legal issues related to trusts, along with the benefit of often being professional investors. However, they also have the drawback of not knowing a family situation as well as a friend or relative, which means they may not always make decisions the way the person who created the trust would have wanted.
Considerations for Finding the Right Trustee
There are many different things that people should consider when choosing a trustee, some related to the general demands of trusteeship, and other issues that are more about selecting between the two types of trustee. One of the most important things to understand about selecting a trustee is that being a trustee can be a fairly demanding job. While some trusts are fairly simple to administer, others can involve a variety of assets and investments that may require significant record-keeping and a large time commitment. Another important thing to consider is that making a person a trustee opens them up to legal liability if they shirk certain duties or manage the trust improperly. There is insurance available to mitigate that risk, but many people are not comfortable placing that liability on their friends of family.
People should also consider the amount of discretion that they are giving the trustee. The more rigid the rules, the more a trustee simply needs to be trustworthy enough to follow them, which can often be accomplished using a corporate trustee. However, some trusts can be set up to give the trustee much more power over how the assets are used. This may push towards a trustee known by the person creating the trust since that person is more likely to know the family situation, but it also makes it even more important that the trustee is someone who the trust’s creator believes will exercise sound judgment.
Choosing a trustee is an important estate planning decision, and will likely be affected by the particulars of a trust. If you are considering creating a trust or have questions about estate planning, contact a Warren estate planning attorney at the Law Office of John C. Grundy today.