estate planning

Should You Use a Professional Trustee?

Using a Professional Trustee or Fiduciary is a good choice if you don't have family members or friends who can be your successor Trustee


One of the most important decisions you make during estate planning is choosing who will represent you when you can no longer act for yourself. Choosing a Professional Trustee may be a good option if you're concerned about conflict among your children or you have no viable candidates.

What is a Professional Trustee?

When you set up your revocable living trust estate plan, you must select a Trustee to manage and administer your estate. A Trustee can be a friend, family member, or Professional Trustee.

A Professional Trustee is someone hired to act in a position of trust on your behalf. They are also known as a Professional Fiduciary. It is their job to take care of your estate. They may serve in several roles in your estate plan, including:

  • Trustee of your Trust;
  • Agent under your Durable Power of Attorney or Health Care Directive;
  • Executor of your estate;
  • Conservator/Guardian; and
  • A manager of your finances.

Family members and friends are often appointed to perform these crucial duties. So why name someone you really don’t know to serve as Trustee? 

There are several factors to consider when deciding if a Professional Trustee is right for you.

Family Members v. Professional Trustees

Should you use a Professional Trustee or a family member to manage your trust? 

Often, people will choose their children as successor trustees of their Living Trust. Family members can be great trustees in some cases, but in others, they may not be a good option. 

Below are specific concerns that can arise when choosing family members.

Family Members

Your Trustee should be someone you trust to carry out your financial affairs, help take care of you if you’re incapacitated, look out for your beneficiaries, and fulfill your wishes. 

A court does not supervise your Trustees during this process, so the person you choose needs to be trustworthy. This can be a challenging job to give to one person, but you need to choose someone who can handle the responsibility.

Family members are typically closer to the beneficiaries and are more likely to appreciate their needs. These are some of the reasons family members are chosen.

The Right Personalities

Being a good trustee doesn’t mean that they have to be an expert in law or finance, but you should be mindful that these elements are a part of the job. Your Trustee will be responsible for navigating legal documents, managing your finances, and communicating with your beneficiaries.

The person you choose as your trustee should be fair, honest, reliable, flexible, and organized. Ideally, they are stable in the personal and financial areas of their own lives and available to serve in this important role. They also shouldn’t be afraid to call a professional if they need help.

Potential Conflicts of Interest

Frequently, when a family member is selected as a Trustee, they are also one of the beneficiaries of the Trust they have been selected to manage. This can cause a conflict of interest, meaning it may be hard for them to be completely objective.

Of course, it is possible for a trustworthy family member to properly handle any potential conflicts of interest that could come up. Still, their role as Trustee and beneficiary could cause others to think that there may be a conflict. 

Family Rivalries

Family rivalries should also be considered when choosing a family member for the trustee role. Unfortunately, dividing a deceased relative's estate can lead to disruption and conflict. This can cause extra stress for family members during an already difficult time.

If you select a family member such as your eldest child as a Trustee, consider whether they have a leadership style that will reduce conflict in the family or can relate well with the rest of the family.

If you are concerned about the complications that may result from choosing a family member or friend as a Trustee, or if no one is able to serve, then a Professional Trustee may be right for you.

Professional Trustees

A Professional Trustee is typically appointed when no one else is a suitable candidate. If you don’t know anyone you’d trust to act on your behalf if you were incapacitated or no longer here, then a Professional Fiduciary is right for you. Sometimes a Professional Trustee may be selected as a successor agent in case the primary agent/family member cannot serve. 

The advantages of naming a Professional Trustee include the ability to carry out your instructions with knowledge and expertise and without the emotion of family dynamics. Independent Professional Fiduciaries do not need to come up to speed on the legal and tax implications of the position and can apply their expertise to do the task efficiently. Also, by using a Professional Trustee, friends and family do not have to carry the moral or personal burden of making objective decisions.

A Professional Trustee is not guaranteed to be a good trustee. Before being selected, you should thoroughly evaluate any individual or institution you consider choosing as your Trustee. It is highly recommended that you interview any prospective Professional Trustee to see if they are a good fit.

If you choose a Professional Trustee, you should have an agreement that states the terms of their compensation and spells out the scope of their work. Make sure your Professional Trustee also carries error and omission insurance and requires a fidelity bond.

Professional Trustee Options

Lawyers, Accountants, and Advisors

Should your trustee be your attorney, accountant, or advisor? These trusted professionals may understand your personal and financial goals better than most, but they may not fully appreciate the risk and responsibility of being your trustee. These types of professionals also often charge higher fees than most other Professional Trustees. Appointing your family attorney or advisor may also create a conflict of interest for them, discouraging these individuals from acting as your trustee.

Banks and Trust Companies

Should your trustee be a bank or trust company? Some banks and trust companies, called Corporate Trustees, provide professional fiduciary services. These institutions have specific systems to manage and reliably invest your assets. They will also provide monthly accounting and explain their decisions as your trustee. A drawback of using professional trustees includes their unwillingness to service clients that are not considered high-net-worth or tailor their services to individuals with unique needs. In addition, their fees can be high.

Licensed Professional Fiduciaries

Should your trustee be a Licensed Professional Fiduciary? Private Professional Trustees may be the best choice when searching for a Professional Trustee. In California, Professional Trustees must be licensed by the state, pass a background check, and satisfy specific education and examination requirements to legally serve. These extensive requirements make Licensed Professional Fiduciaries a notable choice.

 How Much Does Appointing a Professional Fiduciary as Trustee Cost?

Some are concerned that paying a Professional Trustee will reduce their beneficiary’s inheritance. However, almost all trustees, whether family members or professionals are paid a fee for their trustee duties. Trustee fees are usually not significant when viewed as a percentage of the total estate.

Professional Fiduciary service fees vary depending on the complexity and type of service needed. These fees may be charged on an hourly, monthly, or annual basis.

Corporate Trustees typically charge between 1% to 3% of trust assets as the annual administrative fee, which is often negotiable.

Most Private Professional Trustees charge an hourly rate, usually less than the percentage that Corporate Trustees charge.

When choosing whether a Professional Trustee is right for you, consider that professionals can often avoid costly mistakes because they offer expertise and know-how that could preserve or increase the final distribution to your beneficiaries.

 How to Find a Professional Trustee?

Here are some tips on how to find a reliable Professional Trustee:

  • Ask for Referrals. You should ask your estate planning attorney or financial advisory for a referral to a Professional Fiduciary they know and trust. Estate planning attorneys often work with one or more Professional Fiduciaries and can help you set up a meeting to begin the interview process.

  • Search Online. The Professional Fiduciary Association of California provides an online database you can search. It allows you to look for Professional Fiduciaries in California by location, specialty, and language. This can be helpful if you are looking for a Fiduciary that speaks multiple languages or has a specific skill set.

  • Interview. Before making your choice, you should interview them and ensure they are a good fit for you and your family. Ask them about their experience, their fees, how available they will be, and what are their policies and procedures. They will play a meaningful role, and you should get a good sense of who they are.

  • Background check. You can ask for the Professional Trustee’s license and search the California Department of Consumer Affairs database to ensure their qualifications are valid.

Conclusion

Professional trustees will not be suitable for everyone. You should carefully consider the possible complications of appointing a trustee before asking a friend or family member to oversee the distribution of your legacy.

A Professional Trustee may be right for you if:

  1. You don’t have anyone else who can adequately handle the tasks required.
  2. Your family does not get along or struggles to handle challenging tasks.
  3. Your unique situation requires advanced expertise.

No matter who you choose to handle your affairs, you should communicate with your family members about who should be contacted in the event of your incapacity or death, so the management of your estate is ensured. Speak with an estate attorney who specializes in estate planning to discuss the choices that need to be made in designing your unique estate plan. Click Here to Get in Touch With Us For Help with Your Estate Plan.

 

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