Naming a professional trustee for your living trust is a dangerous proposition. Let me share an example.
Joanie and her brother have been trying to settle their mother’s estate for the last two years. It’s a small estate and their mother set up a living trust before she died. They never expected all these problems. But after shredding nearly $100,000 in legal fees (so far) they’re angry.
When their mother set the trust up, the attorney assured the family that settling the estate would be a quick and inexpensive process once their mother passed. The trust helped them avoid probate (read “What is Probate?”) so they were convinced the process would be a snap. Unfortunately, it was anything but. What is the problem?
Flikr, PVK
Mother didn’t want the kids to fight about money. Rather than appoint either one as the trustee of the family trust, she named a professional trustee – a big company that also happened to be an affiliate of the brokerage firm she was using.
That’s the root of the problem, because they had an inherent conflict of interest. The trustee is supposed to settle the estate quickly. The brokerage firm is interested in prolonging the process as long as possible so they continue collecting fees.
Now, Joanie and brother Rick are faced with the either taking the trustee to court or biting the bullet and accepting what the trustee is doing. Neither choice is very attractive. What could Mom have done differently?
Simple.
Name a family member trustee.
This can open the door to lots of squabbles of course, but it’s the right thing to do in most cases. And let’s be honest. If there are going to be squabbles, they are going to come up regardless of who is named as trustee. It’s just that when you name a professional trustee, those squabbles become very expensive and time consuming.
There must be someone in your family who is qualified and responsible enough to act as trustee. Name that person and then talk about it with everyone. Now. While you’re alive and healthy. Don’t put this off and don’t be a chicken about it. Tell everyone why you’ve selected the person and what you expect of everyone.
If you plan on leaving certain assets to one particular person, tell everyone now and tell them why. This will reduce (but not eliminate) the disagreements.
A professional trustee may be your only choice if you have no heirs. But if that’s the case, it doesn’t really matter…does it? There shouldn’t be any fighting going on.
If you do have heirs, name one as beneficiary. Understand that professional trustees have an incentive to prolong the process. Selecting a professional trustee to administer your trust may seem like the best choice if you’re trying to avoid family fights. But really, it’s just the easy way out and probably just a delay tactic that’s going to cost your heirs lots more money.
Avoid this route like the plague.
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{ 10 comments… read them below or add one }
I agree that a professional trustee is not needed in most situations, but if you want to kill a family as quick as possible – have one family member in charge of the other’s money…
There is a whole set of other problems (at least in NY) with trustee liability. So you have Uncle in charge of the investment choices. What happens when he puts into a business? or junk bonds or even CDs when the market is getting double digits? Kind of a rough position to put Uncle in.
Just some thoughts.
That can be such a headache. You are absolutely right about the conflict of interest with the professional trustees as well. (Great pic by the way I went back for a second look and laughed pretty hard after reading the post)Appointing someone you trust is important and it’s sad to hear about all the wasted time and money on what really can be a very simple process..especially on a smaller estate where wishes and directions are explicitly laid out. Great post!
This is great information. My parents (I have two sets) are getting older and I’ve started approaching them with questions about where they want to be buried, if their will is in order, and who the executor is. My one set of parents are currently updating everything, so I’m feeling a bit more relieved. My other set, where my step-father is two years shy of 80, is being very vague and they have a fairly large estate. I tried broaching the subject with them, but they remained pretty silent. Either they are in denial that they will eventually pass away, or they aren’t ready to share any of their estate / will information. At least I know what kind of burial plans they’d like (sort of). Hopefully they’ll share their plans in the near future. I’d hate to find out they hired an outside executor to handle everything.
Little House,
Maybe if you send them this post they’ll change their minds! Good luck and keep us posted.
I hate to say it (possibly because it’s the first time ever) but I completely disagree with you. Having been the beneficiary of an educational trust with a family member trustee it was without a doubt the worst event in my life. While the family member believed they were acting in my “best interest,” they had ideas as to what the money should be used for, regardless of what was originally intended, and used money as a lever at a time when I was particularly vulnerable. I found a clause that allowed me to remove the money at age 21. I wished for the relationship I had with the family member before the trust and decided to try and remove money from the equation. Now, 10 years later, I barely have a relationship with that person who decided I was greedy, spiteful and ungrateful, and I wish the trust had never existed. I am a strong believer in having an independent trustee. Being a family member doesn’t mean there isn’t a conflict of interest and the damage can be farther reaching than financial.
Mrs. Modern,
First, I’m really sorry you had that experience. Sounds really really terrible.
Second…I’m glad you disagree….that’s how I learn.
Third, I’m SO HAPPY you posted this reply. I believe it shows that there are horror stories on both sides of the story.
Certainly, there is no way for anyone to guarantee that a family member will be better or worse than a professional. I haven’t heard many horror stories like this but your story proves it can and does happen.
Personally, if I know someone well, I’d probably take the chance and name a family member.
Everyone that I’ve approached about this, being a trustee to keep my kid from blowing the money, has said they’ll just hand the money over to my son’s Dad.
My son’s Dad is the most financially irresponsible person I know – he buys whatever crosses his eye no matter what bills are due to be paid (while we were together the power got shut off 3 times because of his video game habit).
So, given that most of the money is for my son to keep/maintain the house (if he wishes), for my son to go to college and get a decent start in life (regardless of his Dad’s irresponsible ways), I’m doing a professional trustee so my wishes are followed to a “T”. I did add a paragraph that if six people (from a list of 20) from both sides of my family sign a letter saying the trustee is not following the rules of the will and not acting in kiddo’s best interest then all the money will transfer to a brokerage acct within 30 days. That brokerage acct will pay a percentage out annually to my son till he’s 32 when he gets the lump sum. Don’t know if it’s a good plan but it is a plan (BTW – I’m open to advice/other ideas).
Also, I put clauses in there that if my son passes away all the money is go to charity after debts & such are paid off. And that any spouses he may have, have absolutely no entitlement or claim to the money.
I got those from my grandpa’s trust papers – the family has tried several times to bust his trust open & they can’t so I modeled mine after his.
My Grandma’s got busted open within a year of her death and it makes me sad her wishes weren’t followed.
HI ALL,,, I have been reading intently all info regarding TRUST accounts,,, TRUST being the main word to make the focus on…. I am soon to be paid a fairly large sum of a settlement from a car crash accident in which i was injured in which has in turn left me disabled,,, I have been the black sheep of my family for years and therefore dont see much of them anymore… As if things are not bad enough, NOW of all things on top of my disabilities my wife wishes for a divorce or at least a separation for the difficulties of the past few years due to my disabilities since the accident has left its toll on our relationship,, I no longer trust her like i used to and really did wish to have her as trustee on my trust account for my settlement fund with myself as the other trustee … Now as we are about to part company I am in no way inclined to trust her with the control of my funds,, especially as i have recently found a great number of statements from credit cards and loans in which i had no idea that she had ever had… It is not the problem that i never knew she had them, the fact is that she is a great many thousands of pounds in debt and I have absolutely no idea what she has spent any of the money on… Also , although she wont agree, she is an alcoholic .. I have found many empty bottles hidden in wardrobes from wine, vodka and all sorts. this has been an ongoing thing for a very long time and we have had many rows about her secret alcoholic binges…. it had got to such a stage that i have decided that i just did not wish to keep confronting her anymore because she would get extremely angry which would then get me and her having serious shouting matches,,, furthmore There is the gambling problem that she has,,,, need i say anymore…. I simply do not wish for her to have ANY ACCESS OR CONTROL OVER MY FINANCES,,,,,, I simply just do not know who is the best to now trust,,, Can anybody please tell me what are my best options for getting a professional trustee,,What are the pro’s & con’s
Has any of you had any sort of experience with a professional firm that are trustworthy and not too expensive and easy to deal with when wishing to have access to ANY Amount of your funds
Any helpful advice will be much appreciated
Another option exists: professional private fiduciaries. In California, individuals can replace professional trustees to manage, administer, and wrap up trusts, estates, and the like. The benefit: one on one contact, independent third party management, and broader range of abilities than professional trustees.
In 2008, the state of California wrote into law professional fiduciaries: individuals with specialized training, licensing requirements, and annual education requirements to keep current.
One of our common uses: prevent family in-fighting, such as that listed above by Nunzio Bruno and Evan.
It’s unfortunate that money can tear a family apart…even worse, indecision over the care of an aged family member can take an enormous toll on everyone concerned.
Please recognize that another option exists to professional, large, commercial trustees and family members.
I plan on using a professional trust service because I have four sisters and I wouldn’t either trust any of them, or punish any of them, by making them my trustee. I don’t have much money, and none of my sisters lives anywhere near me. I just don’t want to leave a mess when I die. I need someone to clean out my possessions in my house and sell my house, get rid of my vehicles. I couldn’t care less how much the professional trustee makes off of me, I just want them to settle the estate.