Leaving a financial legacy for your descendants is a significant act of generosity, but ensuring your wishes are respected after your passing requires thoughtful planning. Choosing the proper structure and trustee can make the difference between harmony and discord among your heirs. A family trust allows you to control how your money is used even after you're gone, but your choice of trustee is pivotal to ensuring your legacy is preserved as intended. 
Why a Trustee Matters
The trustee—the individual or entity responsible for managing and distributing trust assets—plays a long-term role that extends well beyond the executor's duties of settling your estate. A trustee must:
- Oversee distributions to beneficiaries.
- Manage trust investments and pay taxes.
- Handle reporting and compliance requirements.
- Communicate effectively with beneficiaries to manage expectations and address disputes.
The wrong choice of trustee can lead to mismanagement, disputes, or even legal battles, undermining the trust's purpose.
Choosing the Right Trustee
When establishing a trust, you can serve as its trustee during your lifetime, naming a successor trustee to take over after your death. Successor trustees can be family members, friends, professional fiduciaries, or bank trustees. Each option has pros and cons:
Family Member or Friend
Pros:
- Knows family dynamics and beneficiaries personally.
- More accessible for emergency distributions or immediate needs.
Cons:
- It may create or exacerbate family tensions, especially if other relatives question their decisions.
- Might lack the expertise to manage investments, taxes, or legal compliance.
- They could face conflicts of interest if they are also beneficiaries.
Professional Trustee or Bank Trustee
Pros:
- Offers professional expertise in financial management and trust law.
- Provides impartiality, reducing the risk of familial conflicts.
- Carries insurance to protect against mismanagement.
Cons:
- Fees can range from a few hundred dollars annually to up to 1.5% of trust assets.
- May have limited availability for immediate questions or urgent situations.
- Some banks prioritize their investment products over the trust's best interests.
Key Traits of an Effective Trustee
Whether you choose an individual or professional trustee, prioritize these qualities:
- Honesty: A trustee acts as a fiduciary, legally bound to act in the trust's best interests.
- Attention to Detail: Managing a trust involves numerous administrative tasks, from filing taxes to maintaining records.
- Communication Skills: Clear and consistent communication with beneficiaries can prevent misunderstandings and disputes.
If you're considering multiple trustees, including a professional trustee as a neutral third party can help resolve tie votes or disagreements.
Communicate Your Wishes
Once you've selected a trustee, clear communication is essential to ensure your intentions are understood:
- Detail Your Assets: Ensure all assets are correctly titled in the trust's name and list them clearly for the trustee.
- Hold a Family Meeting: Explain the trust's purpose, your goals, and the trustee's role to your beneficiaries. This transparency helps prevent future misunderstandings.
- Write a Letter of Intent: Provide context for your decisions and outline your values, guiding your trustee for unforeseen situations.
For instance, if your trust prioritizes funding education, but a grandchild wants to start a business, a letter explaining your values around entrepreneurship could guide the trustee's decision to fund the venture.
Considerations for Special Circumstances
Trusts are beneficial for providing for relatives with disabilities or other unique needs. For example, a special needs trust can protect assets from creditors while ensuring a beneficiary remains eligible for government benefits. Periodically revisit the trust's terms to account for changes in circumstances, laws, or family dynamics.
Avoiding Pitfalls
Failing to plan for contingencies can create headaches for future trustees and beneficiaries. To prevent issues:
- Appoint Backup Trustees: Life is unpredictable. Having additional successor trustees ensures the trust remains in capable hands.
- Review Regularly: Update your trust every three to five years to reflect changes in relationships, laws, or financial circumstances.
Conclusion
Creating a family trust is an act of foresight and love, but its success depends on thoughtful planning and clear communication. By carefully selecting a trustee and providing them with the tools to fulfil their role, you can preserve your legacy and ensure your descendants benefit from your generosity for future generations. If you need guidance setting up a trust or selecting a trustee, contact us at Bountiful Planning to start planning today.
