In many cases, clients choose to name a professional trustee to serve either as the initial trustee or successor trustee of one or more of their trusts. The modern trend toward the use of professional trustees is likely the result of the complexities involved in: 1) the way a trust may be structured; 2) the management of certain types of assets contained in the trust; and 3) the application of the current tax rules and regulations to the trust. A professional trustee is typically comprised of a Bank’s trust department or a separate trust and investment company that specializes in the administration of trusts.
A professional trustee is an alternative to naming a personal trustee, such as a family member or friend. One reason some clients choose to shy away from naming a personal trustee is to avoid placing a burden on their families and friends. Being a trustee involves a great deal of work on the part of the trustee and can be quite disruptive to a person’s life. Another reason clients may consider a professional trustee is to avoid contention among the beneficiaries, such as in the case where one child is named as the trustee of funds being held in trust for the benefit of another child. In that situation, the child trustee may feel pressure to approve a distribution that may not otherwise be exactly in line with the terms of the trust. Conversely, if the child trustee refuses to make a distribution requested by a beneficiary child, it may create ill feelings among the siblings.
A professional trustee, on the other hand, is a neutral third-party. It is a fiduciary whose primary focus is on the language of the trust and doing what is in the best interest of the beneficiaries, both current and remainder. It is unbiased and acts objectively when it comes to favoring any one beneficiary over another. Consequently, a professional trustee will not cave to pressure or have any qualms saying no to a beneficiary when it finds that a distribution request is not authorized by the trust. A professional trustee handles each distribution request cautiously and often has committees in place to approve distribution requests that follow the provisions of the trust. To that end, a professional trustee ordinarily complies and maintains back-up documentation to support why a particular distribution is being made in case there is ever a dispute.
There are several advantages of utilizing a professional trustee aside from those considerations mentioned above. A professional trustee is just that—a professional who is in the business of acting as trustee. A professional trustee is well versed on what steps need to be taken in the administration of various trusts, while an individual trustee would normally be subject to some degree of a learning curve in ascertaining and prioritizing what needs to be done. Because a professional trustee keeps abreast of current laws and is able to read and interpret complex trust agreements, it usually does not require as much guidance as an individual trustee who is without any formal training in this area. As such, a professional trustee can generally step in and administer the assets while keeping overall costs down.
Of course, a professional trustee is entitled to take a fee for its management services, which are customarily computed upon the value of the assets subject to its oversight on an annual basis. Most professional trustees have a standard fee schedule included in the trust administration package. The fees may differ as they pertain to various aspects of the administration process, including making investments, performing tax services and dealing with specialty assets, such as businesses, commercial properties and rentals to name a few. While some may see the charging of fees as an apparent disadvantage of using a professional trustee, it should be noted that any trustee has the right to take an appropriate fee from the trust, regardless of whether the trustee is an individual or a professional. For example, it is not at all uncommon for a child trustee to be deemed entitled to receive as much compensation as a professional trustee for performing like services.
It is good practice to interview your choice of professional trustees to confirm that the manner in which the trust will be administered matches with your expectations. You will want to feel comfortable with the professional trustee's approach since some may be more "hands-on" than others. Depending on the character of the trust assets, it may also be important to find out if the professional trustee is willing and equipped to handle certain non-investment properties that may involve a specific area of expertise.
Choosing a trustee is not a “one size fits all” decision. In many instances, it may make perfect sense to rely upon a family member, friend or trusted advisor, such as an accountant or attorney, to serve as trustee of a trust. Some clients may even prefer to use a hybrid arrangement by naming one or more individual and professional trustees to serve in particular circumstances. In other situations, there may be clear reasons that lend a trust to management by a professional trustee. Similar to entering into a relationship with any trustee, taking steps to clarify your expectations at the outset will go a long way in making sure that you select a professional trustee that most effectively meets your needs.
Attorney Kari L. Stephens
