Guidance

RESOURCES TO HELP SHAPE YOUR FINANCIAL FUTURE

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Angelo M. Marroquin, J.D.
Trust Administrator
The Chicago Trust Company

When an individual (grantor) creates a will that assigns assets to a trust, or establishes a revocable living trust, he or she must determine who to name as successor trustee (trustee). Many grantors initially name themselves to maintain control of their financial affairs. However, there will come a time when he or she is unable to act due to either incapacitation or death. This begs a few questions. Who will step in to act? Is that person qualified? Will the grantor’s wishes ultimately be fulfilled? The decision to name a trustee is an important one which requires careful consideration.

If a grantor becomes incapacitated, a successor trustee must manage trust assets on the grantor’s behalf. After death, that responsibility shifts to the named beneficiaries. The trustee has a legal obligation to follow the instructions of the trust and to manage the trust assets as a reasonably prudent investor. Over time, administration can become complex, especially if assets are to be expended over multiple generations. During administration, the responsibilities of the trustee include investing assets in a prudent and tax-sensitive manner, filing taxes and accountings, paying bills, maintaining real estate, making distributions according to the document, and consulting with beneficiaries. All of these duties must be performed within the context of fiduciary state law. Neglecting or mishandling any of these can land an individual in court for a breach of fiduciary duty.

Spouse, Children, or Friends
Often, grantors choose their spouse, children, or even a close friend to serve as their trustee. These family members or very well-known friends are inexpensive to appoint, and they often have a personal interest in the trust’s success. While this may appear a safe choice, there are many long-term factors to consider. Family dynamics change over time and the risk of inter-personal strife often increases when management of family finances is introduced. In addition, the trustee must both be willing and have the available time and resources to bear the responsibility. Most importantly, the prospective trustee must be trustworthy, competent, impartial, and bound to the wishes written in the trust. Appointing a family member or friend as trustee can prove to be an effective solution when trust assets are smaller and/or there is a solid family dynamic, but the risks must be carefully weighed.

Professional Trustee
If there are concerns with family members or friends as trustee, a professional trustee presents a viable solution. They offer the investment expertise, experience, and know-how to consult with beneficiaries on an objective and emotionally neutral basis while managing the trust responsibly and efficiently. Professionals will often have established teams and back-office operations to handle everything from management of unique assets, investing, taxes, day-to-day administration, distributions, and regulatory compliance. While some may argue that these services are costly, the peace of mind that results from having dedicated professionals working on your behalf is often well worth the fee.

Co-trustees
A third option is to elect both a friend or family member and a professional as co-trustees. When considering this path, keep in mind that individual trustees tend to receive pressure from beneficiaries to compel distributions from the trust which may cause a disagreement with a professional who has a legal duty to treat all beneficiaries impartially.

To discuss selecting a trustee, contact a Wintrust Wealth Management professional.