By Attorney, Philip Kavesh

When setting up a Living Trust, one of the most important decisions you’ll make is choosing a trustee – the person or entity who will eventually carry out your wishes, manage your assets, and make distributions for the benefit of your beneficiaries. We talked about this in our previous article, “Avoid the Common Mistakes When Choosing a Successor Trustee.” And some readers asked for more detailed guidance on how to choose a Professional Trustee.

While many people choose a family member or a friend to act when they’re disabled or gone, there are times when it’s better to appoint a Professional Trustee. This might be an individual licensed as a professional fiduciary or a Corporate Trustee, like a bank or trust company.

Here’s what you need to know when deciding if a Professional Trustee is right for you and how to choose one wisely.

Why Consider a Professional Trustee?

If you have one or more of the following situations, the use of a Professional Trustee may be a good fit for you:

• You are concerned that the person you appointed as Trustee (or are thinking about appointing) may not be able to handle the duties and responsibilities
• You have several children or other family members who are named (or might name) to serve together as Co-Trustees, and they aren’t likely to agree when actions need to be taken
• You know, deep down, that one or more of your beneficiaries (or their spouses) won't get along with your appointed Trustees
• One child (who will receive his or her inheritance right away) will act as Trustee and "lord over" another child whose share will be held in trust
• Beneficiaries may immediately withdraw their share of large IRAs and company retirement plans, but you would prefer they "stretch-out" these taxable distributions, so they'll have more to support them later in life
• You have children of a prior marriage and name your surviving spouse to act alone as Trustee, or as Co- Trustee with one or more of your children, or worse yet, name children of both spouses to act together.

In all these situations, and many more, it's likely a smarter decision to name a Professional Trustee, either as sole successor to you or as a Co-Trustee with your spouse, child or other family member (to act as a "check and balance" on them).

Unlike a family member Trustee, a Professional Trustee:

• Doesn't have personal or emotional issues with your other Co-Trustees or beneficiaries
• Isn't unduly influenced by a beneficiary, their spouse, or another family member
• Doesn't take it upon themselves to "rewrite" your plan because "they know better"!
• Has the requisite experience, staff and time set aside to handle the important financial matters of your estate quickly and efficiently
• May actually cost less than a family member Trustee, because certain professional services (like accounting, tax return prep or appraisals) are included in the Professional Trustee's fee rather than paid for separately
• As an independent Trustee, a professional can help preserve your family harmony!

What to Look for in a Professional Trustee

1. Credentials and Licensing

Individuals who act as professional Trustees in California must be licensed by the Professional Fiduciaries Bureau. Corporate trustees (banks and trust companies) are more rigorously regulated and insured.

2. Track Record

Ask how long they’ve been serving as a Trustee and what types of trusts they manage. Are they familiar with Living Trusts? With other “sub-share” trusts for beneficiaries such as Special Needs Trusts, Spendthrift Trusts, or Marital Trusts?

3. Fees

Professional Trustees typically charge annually a percentage of the value of trust assets. Get a clear breakdown of costs and make sure they’re reasonable in your area and for the services offered.

4. Communication Style

Make sure they are responsive and clear. You want someone who will answer your beneficiaries’ questions, issue understandable statements, and make distributions in a timely manner.

5. Investment Policy

A Trustee is responsible for managing, maintaining or growing the trust assets. Ask about their investment philosophy – are they conservative, balanced, or aggressive? Does that align with your philosophy and goals?

6. Reputation

Check reviews, references, or Better Business Bureau ratings. Your attorney, based on his or her experience, may also know which local Professional Trustees are trustworthy and dependable.

Choosing Between a Private Fiduciary and a Corporate Trustee

Private Fiduciary Pros and Cons:

• Personalized: Yes – more one-on-one attention
• Minimum asset size: Often none or a low minimum
• Availability when the time comes (a private fiduciary may, by the time they’re needed to act, have too many cases to handle, particularly if they have limited staff, and therefore may decline to act when called upon)
• Continuity: May retire or pass away (not only before they’re called on, but before a beneficiary’s trust share to be held for years is fully distributed)
• Fee structure: May be more flexible

Corporate Trustee (Bank or Trust Company) Pros and Cons:

• Personalized: May be less personal and more institutional process-driven (but some do assign one experienced trust officer to handle your case and act as a readily available personal liaison with your beneficiaries)
• Minimum asset size: Often requires $1 million or more in assets, besides the home
• Continuity: Ongoing continuity of the company, beyond its individual staff
• Fee structure: More standardized and perhaps higher fees (but Corporate Trustees may have investment management, tax planning, accounting and/or tax return prep services on staff, already incorporated into their fees)

Final Tips

1. Consider naming a backup Professional Trustee in case your first choice is unavailable or declines to act
2. You can always combine roles – for example, appointing a family member and a Professional Co-Trustee to balance personal insight with professional know-how. However, not all Professional Trustees are willing to act with an individual Co-Trustee.
3. You may wish to retain your current financial/investment advisor. If so, find out if the Professional Trustee will work with an outside advisor (and what their fee will be without providing such services themselves).

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