Selecting the Right Independent Trustee

The foundation for effective estate planning, succession planning and directed trusts

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Trusts are a common estate-planning tool used for tax planning, preserving legacies, transferring wealth, and caring for loved ones’ current and future needs. Who you select as trustee defines your trust’s ability to achieve these goals.

Partner Susan Hartley Moss has more than 30 years of experience helping clients successfully establish trusts as part of their estate plans. Her video series outlines the key factors to consider before creating a trust and choosing a trustee who can balance their fiduciary responsibilities with your unique circumstances.

Why Families Seek Out a Trusted Advisor

The motivation for seeking professional advice often centers around a family’s desire to:

  • Modernize existing trust structures that no longer reflect their needs
  • Address a conflict of interest that has arisen within the family business
  • Invest trust assets in ESG securities (environmental, social and corporate governance)

Transferring Funds to the Next Generation

Over the next 30 years, $16 trillion of wealth is expected to transfer to the next generation. These individuals want more control over their trust investments while maintaining the core trust structure. Their needs, coupled with the current estate-tax exemptions, have created an uptick in demand for modern and flexible trusts.

Five Critical Questions in Estate Planning

Putting the proper estate planning structures in place involves asking questions that go beyond the potential tax implications.

  1. Have you thought about the purpose of your wealth for your family?
  2. Have you determined how much wealth is enough for the next generation?
  3. What are the two most important messages you want to convey about your family and your values?
  4. Why are you working so hard to build your family business?
  5. Why are you exerting so much energy to plan for the future?

The Importance of Planning

On the surface, it may appear your estate plan has accomplished your objectives, such as successfully transferring your business to the next generation. However, a closer examination may reveal the plan failed to keep the family together and focused on the core mission. Work with an advisor who specializes in both estate and legacy planning to help you avoid these issues.

Questions to Ask When You’re Making a Succession Plan

How do you create a succession plan that keeps family harmony, perpetuates your business and successfully transfers wealth to the next generation? It starts with these questions.

  • Who will be the trustee?
  • Who will run your enterprise after your death?
  • Do you want your trustee to also serve on the business’ board?
  • What about children who are not involved?
  • How do you feel about having the same child run your business and serve as trustee for their siblings’ trusts?

Modernized Trust is a Good Solution

Directed trusts are the most popular modern trusts because they separate administrative, investment and distribution responsibilities. A directed trustee oversees the administration of the trust, but the investment committee handles all investment decisions. Additionally, the distribution committee manages income and principal distributions to beneficiaries. This approach ensures no one person has control over the entire trust.

Modernized Directed Trusts

Modern directed trusts offer families many benefits, including:

  • Greater control
  • More investment flexibility
  • Reduced trustee fees
  • Optimized trust structures

The Added Value of an Independent Trustee

Family members are usually the first ones to pop into people’s heads when selecting a trustee. However, interests are better served by naming an independent trustee who can mitigate family conflicts. Here are five considerations for selecting an independent trustee:

  • Expertise
  • Objectivity and impartiality
  • Accountability
  • Time
  • Experience in judgment

Importance of Having a Knowledgeable Trustee

Family businesses add a layer of complexity to estate planning. Many families fail in the transition, which can lead to costly litigation and the enterprise’s demise. An independent trustee can help you navigate the non-tax issues, including governance, conflicts of interest and the long-term effects on the next generation.

Importance of Collaboration

Rarely does one advisor have all the expertise necessary to manage the complexities of trusts involving family businesses—the financials, governance and emotional family discussions. You want to work with a financial advisor who embraces collaboration and is willing to bring in the experts best suited to create a truly comprehensive plan.

Risks When You Hire the Wrong Trustee

Choosing a family member or friend as trustee may be the “comfortable” choice. But it’s often not the right one. These individuals typically don’t understand the breadth of their responsibilities. They have to make decisions about inheritances, distributions, communications and investments. All of which can cause beneficiaries to question their motives and objectivity. Hiring an independent trustee can help you avoid these conflicts.

Selecting the Right Trustee

The best trustee for you is the one who has the knowledge and expertise to help your family prosper. They should help you successfully navigate the common pitfalls, assist with trust creation and execution. The last thing you want is for your written estate plan to turn into a major family conflict because of poor governance.

Responsibilities of a Trustee

As discussed in previous videos, family members and friends often don’t fully grasp what’s involved with serving as trustee and being a named fiduciary. This lack of understanding can lead to personal liability, family conflicts and litigation. Independent trustees and directed trusts that divide responsibilities amongst several parties can help you mitigate these risks.

Why I Became a Fiduciary Advisor

Learn why Susan says being a trusted advisor is her “calling” and her motivation for helping others.