Over the years helping families with their financial planning, I have come to appreciate the creation and maintenance of a well-crafted estate plan. By providing a solid road map of resources and intentions, an estate plan should not only serve to reduce the burden of our death on loved ones, it should also reflect how we intend the legacy of a lifetime of working and planning to impact our families and the world after we are gone.
I drafted my first personal estate plan at the age of 34, and have updated it regularly since then to account for changes in my family and assets. I have also collaborated with local law firms on this process for dozens of clients.
Oftentimes, an estate plan can be limited to a will and the thoughtful structuring of beneficiaries on IRAs, life insurance and annuities. In more involved situations trusts can be created to provide more intricate instructions and create a more durable management structure for the estate.
In situations where the creation of trusts is appropriate, one of the most important and potentially challenging decisions most families will address is who should serve as the successor trustee when the creator (grantor) of the trusts has died or become unable to manage affairs late in life.
Upon death or incapacitation of the grantor, it is typical a successor trustee will “ascend” to do the job of managing the trust and carrying out the intentions of the grantor. This can, of course, be an important and arduous role, and the selection of the right successor trustee can greatly impact the experience of the trust’s ultimate beneficiaries, typically family members and charities.
The three most common options considered for successor trustees, in my experience, are a trusted family member, a trusted adviser or an institution such as a bank or trust company. Each of these options has certain issues to consider.
The majority of the families I have worked with have named a trusted family member in this role. When the right family member is chosen, I have found the process of managing the trust to be more open, cost effective and ultimately less stressful for beneficiaries. Of course, I’ve also witnessed a nightmare scenario or two, where the chosen family member is emotionally incapable of this responsibility. But all in all, the great majority of families I’ve worked with navigate this process maturely and collaboratively.
At times when no family member can be identified, I have seen a trusted adviser serve in this role as well. While many financial advisers will not be able to accept this role due to potential conflicts of interest and ethics issues, accountants and attorneys are sometimes able and willing to accept the role of successor trustee.
I have found the practice of naming a trusted adviser to work well when the trust’s beneficiaries may have special needs or money management considerations, or when the trust is set up to benefit one or more charities. One important factor to consider when contemplating this option is the age of the trusted adviser, as advisers often tend to be similar in age to the grantor, and may not be able to serve due to death or age when the need arises.
The third option is to name an institution such as a bank or trust company to this role. Now, I speak only from my experience, but I have never seen an institutional trustee provide a completely positive experience to beneficiaries. I have perceived institutional trustees to oftentimes be inaccessible, rigid and expensive.
In addition, the original relationship which prompted the grantor to name the institution may have changed over the years, leaving the institutional personnel working on the trust as having no connection to, or understanding of, the family. While this arrangement is not uncommon, for myself I can envision very few scenarios where I would name an institutional trustee in my personal estate planning.
