Vanilla
The advisor’s guide to naming the right fiduciary trustee for an estate
One of the biggest estate planning mistakes people make is placing the power and responsibilities of a trustee in the wrong hands. Poor fiduciary selection can lead to family in-fighting, lengthy legal disputes, and a substantial loss of assets due to mismanagement.
As a relationship-driven financial advisor, it’s essential that you understand the role of a fiduciary trustee and that you help your client select the right individuals or corporations to act as fiduciaries for their estate. A trustworthy, knowledgeable trustee helps safeguard the estate plan from mishandling and assures that beneficiaries get the full value of the assets.
What is a fiduciary trustee?
A fiduciary trustee is a person or corporation with a legally binding responsibility to manage the assets a client has placed in a living trust.
The term “fiduciary” describes the relationship—one where an individual or corporation has the legal power to make decisions on the client’s behalf. Fiduciary power can cover financial or health care decisions, depending on the type of designation. A fiduciary has a legal duty to act in the best interests of the estate, above the fiduciary’s own interests.
The term “trustee” describes the type of asset over which the fiduciary has authority: the revocable living trust.
While it’s most common for clients to name family or friends as trustees, clients can also select:
-
Corporate trustees: A bank or trust company manages the trust on behalf of the estate for a fee.
-
Professional private trustees: A trained, licensed professional acts as a financial/health care agent while the client is still alive. Once the client has died, the private trustee manages the trust. An attorney or accountant can also provide trustee services.
Is there a difference between a fiduciary trustee, executor, and agent?
Trustees, executors, and agents are all types of fiduciaries, but each role carries out different responsibilities:
-
A trustee is a longer-term position that can last decades. The trustee has a legal obligation to manage the assets of a trust in the best interests of the estate while also ensuring the financial well-being of the trust’s beneficiaries. Trustee responsibilities include monitoring investments, filing tax returns, and overseeing the distribution of funds to beneficiaries. If the client legally designates them, an executor or an agent can also act as a trustee.
-
An executor is named in a last will and testament. This short-term position, usually lasting between 12 and 18 months, is focused on carrying out the last wishes of a client. An executor is responsible for collecting the client’s assets, paying off any debts, and distributing the rest of the assets as indicated in the will. Unless they’re also designated as a trustee, the executor of a will does not hold responsibilities over the assets in a revocable living trust. Once an executor completes their tasks, the court discharges them.
-
An agent acts on behalf of a client while the client is still alive. Designated by a power-of-attorney document, an agent is responsible for anything the client is incapable of managing, including financial and health care decisions. Agents also often manage assets that exist outside of a client’s living trust—for example, the upkeep or sale of a property.
What are the duties of a trustee?
A fiduciary trustee’s duties differ depending on the terms of a trust. In circumstances where the beneficiaries of a trust are minors, the trustee may have a more central role in protecting and managing the assets until the beneficiaries reach the age of majority. Ultimately, a trustee works to carry out the terms of the trust.
Their responsibilities include the following:
-
Distribution of trust assets: When beneficiaries request funds, the trustee must determine if distributing funds will be in compliance with the trust’s terms. Then, the trustee must approve or deny the request.
-
Recordkeeping: The trustee must keep records and maintain the books of the trust, including tax filing.
-
Investment management: According to Fidelity, “The trustee must ensure that the trust assets are managed in a way that is appropriate for the long-term needs of the beneficiaries, many of whom may be young children.”
What happens if a fiduciary trustee fails to perform their duties?
There are countless estate planning horror stories about trustee and fiduciary misconduct, including elder abuse, fraud, and mismanagement of investments.
The breach of fiduciary duty attorneys at Zatoun, Ballew & Taylor report that “beneficiaries and co-trustees usually have less knowledge of the trust’s assets, management or of financial investing in general — and are at risk to harmful misconduct by trustees. Moreover, trusts are frequently aimed to benefit young, elderly or incompetent family members who are especially vulnerable to unscrupulous trustee behavior.”
It can be a complex and costly legal process to prove trustee misconduct—another reason responsible trustee selection is crucial.
How can I help my client responsibly name a trustee?
Trustees should be trustworthy, financially responsible, and likely to be alive when a client dies.
Look for trustworthy traits
Talk with the client about who has a history of supporting their goals and following through on promises. Discuss those in the client’s life who share the client’s values and principles.
Look for financial acumen
Talk with the client about who they know with a strong sense of financial responsibility. Rule out people who seem to always have money troubles. A potential trustee should have at least a basic understanding of or experience with investing. That said, someone who takes big risks on the stock market may not be the best candidate for the role of trustee.
Look beyond family
If a client has complicated family dynamics or wants to avoid causing resentments, talk with them about the pros and cons of paying a professional to handle the trust:
-
Professional trustees or trust companies have expertise in trust administration. Licensed trust professionals are under strict legal regulations to administer the trust ethically, and they must undergo training and exams to maintain their license. But the trust company will likely be unfamiliar with the family and may be inflexible about distributing assets to beneficiaries.
-
Long-time attorneys or accountants are likely to be familiar with the family’s needs. They charge a fee for trust administration but often cost less than trust companies. However, a small firm may not have the same level of expertise that a trust company or professional trustee has.
There are many ways to structure trustee designations to find the right balance, including naming a family member as a co-trustee with a trust company. It’s always wise to advise your client to discuss the best strategy for naming trustees with an estate planning attorney. Once your client decides on who they want to name as a trustee, an attorney will draw up the paperwork to make it official.
If you want to learn how you can standardize the estate planning process, get in touch.
Drive ongoing client conversations on fiduciary trustee choices
Trustee designations aren’t set in stone. Throughout the client relationship, it’s important to check in regularly with your client to see if anything has changed that makes them second-guess their choice in trustees. The more up to date your client’s estate plan is, the more likely they will be to keep their legacy secure after they’re gone.
With Vanilla Estate Intelligence, you can use estate reporting to drive conversations about estate planning and trustee designations. Your client will reduce the risk of handing the keys of the estate to the wrong trustee and will stay confident in their overall estate planning decisions. Get in touch to learn more.
Help your clients protect their wealth and legacy
This article is for educational purposes only and should not be considered legal advice. If you feel that the information in this article is pertinent to your situation, you may wish to consult a qualified attorney for advice tailored to your circumstances.
Published: Apr 22, 2021
Ready to get started?
Deliver a whole new client conversation experience
Talk to our sales team today.