That depends on many important factors, including how you want your legacy protected and whether your family relationships will be jeopardized by your decision.
After spending years building a solid financial foundation, you may have created an irrevocable trust to protect it. You may have placed any number of assets into your trust, including real estate, financial accounts, stocks and bonds, personal property, retirement accounts, and/or business interests. On paper, it appears that you’ve established a secure, stable way to shelter your wealth. However, one decision you make about your trust will hold the power to shape how your wealth is preserved or lost: who you choose as trustee.
Our experienced estate planning attorneys at Landskind & Ricaforte Law Group, P.C. understand that for those who have a high net worth of $2-5 million, the person you select is especially critical. We know you want someone who will protect your legacy and carry your intentions forward, and our attorneys can help guide you and your family through this decision. Here, we discuss the risks and benefits of choosing a family member or a professional to manage your trust and how to reduce risk and protect relationships with that decision.
Trustee Selection for $2–5 Million Estates
When you have a high level of wealth, the financial decisions you make carry weight and real consequences. Once you’ve created a trust to safeguard your assets, the trustee of that trust must be financially responsible and categorically trustworthy. A poorly managed trust can lead to tax inefficiencies, family disputes, or missed investment opportunities.
You may feel compelled to appoint a family member to serve as trustee. Often, grantors feel more comfortable having a sibling, spouse, or adult child managing those assets. They may believe in the honesty of a family member and their understanding of family matters. However, managing a trust requires certain skills that some family members may not have. Because an irrevocable trust removes control from the grantor, it’s important to choose a trustee who demonstrates good judgment, financial savvy, and emotional intelligence.
Why Choose a Family Member
A family trustee often brings familiarity with family matters and shared values to the role of trustee. In certain situations, this can be an advantage:
- A family member may better understand a beneficiary’s needs, habits, and long-term goals. This can lead to more thoughtful distribution decisions, especially when the trust allows discretion.
- A family member may have lower administrative costs. A family trustee may serve without compensation or charge less than a professional trustee. This can preserve more of the trust’s value over time.
- A family member may have a personal understanding of family dynamics. This may help guide decisions that reflect the grantor’s intentions.
- A family member may provide more flexible communication. Having conversations with someone your family is familiar with can make coordinating processes and paperwork easier.
Why Not to Choose a Family Member
Even well-meaning family members can face challenges when responsibilities grow more technical or emotionally charged:
- Personal relationships can influence distributions, and this can lead to perceived favoritism or conflict.
- A family member may have limited financial experience or expertise. Managing investments, taxes, and reporting requirements requires consistent attention and knowledge.
- A family member serving as trustee may feel like they have a second job, especially during disputes or economic shifts.
Why Choose a Professional Trustee
Professional trustees often bring financial expertise and other technical skills to the job. You may choose someone from a bank or trust company; or you may want a private, independent professional such as a financial advisor, an accountant, or an attorney.
- Unlike family members, professional trustees operate within established processes. The trustee will likely have to manage recordkeeping, investments, asset inventories, and compliance checks. These are key tasks when the trust includes multiple beneficiaries, business interests, or long-term distribution schedules.
- Professional trustees follow the terms of the trust without personal bias. This reduces conflict and disputes among beneficiaries.
- Professional trustees have financial and legal experience. Teams manage investments, taxes, and reporting requirements with an expertise that family members may not have.
Why Not to Choose a Professional Trustee
Professional oversight can be expensive, and a professional trustee will likely not have personal interest or insight into your family.
- Administrative fees can vary, ranging from 0.5% to 2% of trust assets, depending on the complexity of the trust.
- There is less personal familiarity, and professional trustees may rely strictly on documented instructions rather than knowledge of family history and background.
- Because professional trustees follow internal and specific processes, requests and distributions may take longer.
When a Professional Trustee May Be the Better Choice
Not every trust requires a professional trustee. But certain conditions increase the likelihood that one is the better fit. There are situations that require objectivity and expertise, including the following:
- You have a blended family. Competing interests between spouses, children, or stepchildren can create tension that requires neutrality.
- You have significant investment assets in the trust. Portfolios involving real estate, private equity, or business holdings will likely demand active management.
- You have younger beneficiaries. Younger or financially inexperienced beneficiaries benefit from structured distributions and oversight.
- Your family situation has a past conflict or you anticipate disputes. If family disagreements have caused problems in the past, a neutral third party can prevent escalation.
You Can Have Both
Many families don’t realize they can have both a family and a professional trustee. Instead of choosing one over the other, some trusts appoint both, and each plays a distinct role.
For example, a family trustee may handle personal decisions, while a professional trustee manages financials and investments. This structure blends emotional insight with financial acumen.
While there is no universal answer for choosing the best trustee, careful role selection with clearly defined responsibilities can help provide the best trust management, helping to eliminate financial stress and emotional conflict. Before naming a trustee, consider the level of complexity of your trust, the level of tension your decision will cause your family, if the trustee has enough time and availability to take on the role, and how, specifically, you want your legacy handled.