Trusts can be an important vehicle for managing and preserving wealth. Who should steer, you, your spouse or child, or a professional trustee?
Trusts can help investors shelter assets from taxes and efficiently pass on wealth to others, but the success of a trust depends in large part on its trustee. Who’s the best choice for this important job?
Investors are most likely to designate themselves or a spouse as trustee, according to Millionaire Corner research, which indicates people are more comfortable relying on someone they know –rather than a financial professional - to carry out the directives of their trust.
For example, close to two-thirds of investors with $25 million or more hold a portion of their assets within a trust, according to our recently published $25 Million Plus Investor 2012. Most of these affluent investors serve as their own trustee (41 percent) or have a spouse (40 percent) serve as trustee. Some designate another family member (21 percent) or child (18 percent) as trustee, while others assign financial institutions (25 percent), attorneys (24 percent ) and accountants (13 percent) roles as trustees.
“Most families do not have a strong understanding of the role of a fiduciary,” according to the 2012 Personal Trust Update recently published by Millionaire Corner. “Additionally, it is often felt that a family member will have a greater understanding and compassion for the beneficiaries than a corporate trustee.”
A trustee distributes income and assets of a trust according to the terms established by the grantor, the individual who establishes the trust. The responsibilities can be complicated and time-consuming, and may involve investing trust assets, recordkeeping, filing tax returns and evaluating requests for distribution of trust assets.
“A trustee who is inexperienced or ‘too close to the situation’ may not be the best choice,” according to investor insights provided by Fidelity Investments. “Even in the most loving families, relations can sometimes become difficult and emotionally charged.” According to Fidelity, an outside professional may prove more objective and experienced in carrying out the myriad duties of a trustee. Some investors ask a professional to serve as co-trustee with a spouse or other family member.