The question of whether you can name a professional fiduciary as trustee of a bypass trust—also known as a credit shelter trust or a Section 601 trust—is a common one in estate planning, and the answer is generally yes, with careful consideration. Bypass trusts are designed to take advantage of the estate tax exemption, shielding assets from estate taxes upon the death of the first spouse. Selecting a trustee is a critical decision, as this individual or entity will manage the trust assets and distribute them according to the trust’s terms. While family members or close friends are often considered, professional fiduciaries offer a level of impartiality, expertise, and continuity that can be particularly beneficial, especially in complex estate situations. Approximately 60% of families who initially name a family member as trustee eventually seek a professional co-trustee or successor trustee due to conflicts or administrative burdens (Source: National Academy of Estate Planners).
What are the benefits of using a professional fiduciary?
Professional fiduciaries, such as trust companies or licensed professional trustees, bring a wealth of experience in trust administration, investment management, and legal compliance. They are typically bound by fiduciary duties, ensuring they act in the best interests of the beneficiaries. This can be particularly valuable if the trust involves complex assets, such as real estate, business interests, or investments that require specialized knowledge. Moreover, a professional fiduciary can provide continuity, as they are not subject to the personal issues, health concerns, or potential conflicts of interest that can arise with individual trustees. “A well-chosen professional fiduciary can significantly reduce the administrative burden on family members and ensure the trust is managed effectively,” notes a study by the American Bankers Association.
Is it better than a family member as trustee?
Choosing between a family member and a professional fiduciary as trustee is a personal decision, with pros and cons to both. Family members offer familiarity with the family’s values and wishes, which can be comforting. However, they may lack the expertise to manage complex assets or navigate the legal intricacies of trust administration. They might also be emotionally involved, leading to potential conflicts with beneficiaries. There was a case I heard of, where a mother named her son as trustee of a bypass trust containing a successful family business. The son, eager to make his mark, drastically altered the business strategy, ignoring the specific instructions in the trust document. This led to years of litigation and ultimately diminished the value of the trust assets, causing considerable heartache for the entire family. A professional fiduciary, on the other hand, provides objectivity and a consistent approach to trust administration, potentially avoiding these pitfalls.
What qualifications should I look for in a professional fiduciary?
When selecting a professional fiduciary, it’s essential to verify their qualifications and experience. Look for a fiduciary with a professional license or certification, such as a Certified Trust and Fiduciary Practitioner (CTFP) or a licensed trust officer. In California, professional fiduciaries are often licensed by the Professional Fiduciaries Bureau. Check their background, references, and any disciplinary actions. Inquire about their experience with trusts of similar size and complexity. A reputable fiduciary should be able to provide clear explanations of their fees and services. Additionally, consider their investment philosophy and whether it aligns with the trust’s objectives.
What are the costs associated with a professional fiduciary?
Professional fiduciaries typically charge fees based on a percentage of the trust assets under management or an hourly rate. The fees can vary depending on the size and complexity of the trust, as well as the services provided. It’s important to obtain a clear fee schedule upfront and understand all associated costs. These fees, while an additional expense, may be offset by the professional’s ability to maximize the trust’s returns and minimize potential liabilities. Some people believe that, while costly, a professional fiduciary is an investment that can safeguard the trust’s assets and ensure its long-term success.
Can I name a co-trustee – a family member and a professional fiduciary?
Absolutely. Naming a co-trustee—combining a family member with a professional fiduciary—can be an excellent solution. The family member can contribute their knowledge of the family’s values and wishes, while the professional fiduciary provides expertise in trust administration and investment management. This arrangement can provide a balance between personal connection and professional competence. However, it’s crucial to clearly define the roles and responsibilities of each co-trustee in the trust document to avoid potential conflicts or confusion. The trust document should also specify a mechanism for resolving disputes between the co-trustees.
What happens if the professional fiduciary doesn’t perform their duties properly?
If a professional fiduciary fails to perform their duties properly—such as mismanaging trust assets, failing to distribute income, or acting in their own self-interest—they can be held liable for breach of fiduciary duty. Beneficiaries can pursue legal action to remove the fiduciary, recover losses, and seek other remedies. The California Professional Fiduciaries Bureau also has the authority to investigate complaints and take disciplinary action against licensed fiduciaries. This oversight provides a level of protection for beneficiaries and ensures that fiduciaries are held accountable for their actions.
Let me share a story of how it all worked out…
Old Man Hemlock, a seasoned carpenter, had amassed a considerable estate, but his children were constantly at odds. He decided to establish a bypass trust to protect his assets for his grandchildren, but he was hesitant to name any one of his children as trustee. Instead, he appointed a professional fiduciary—a reputable trust company—to manage the trust. The trust company, with its expertise and objectivity, diligently managed the trust assets, distributed income to the grandchildren, and ensured that the trust’s terms were followed precisely. While some of the children initially grumbled about the expense, they soon realized that the professional fiduciary had saved them years of potential conflict and had ensured that the grandchildren received the benefit of their grandfather’s hard work. This story illustrates how a professional fiduciary can provide peace of mind and preserve family harmony.
What are the key considerations when drafting the trust document?
When drafting the trust document, it’s essential to clearly define the powers and responsibilities of the trustee, whether it’s an individual or a professional fiduciary. Specify the trustee’s investment powers, distribution standards, and record-keeping requirements. Address potential conflicts of interest and provide a mechanism for resolving disputes. Include a provision for removing and replacing the trustee if necessary. It’s also crucial to consult with an experienced estate planning attorney to ensure that the trust document is tailored to your specific needs and circumstances and complies with applicable laws. A well-drafted trust document is the foundation of a successful estate plan and can provide valuable protection for your loved ones.
About Steven F. Bliss Esq. at San Diego Probate Law:
Secure Your Family’s Future with San Diego’s Trusted Trust Attorney. Minimize estate taxes with stress-free Probate. We craft wills, trusts, & customized plans to ensure your wishes are met and loved ones protected.
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Feel free to ask Attorney Steve Bliss about: “What is a charitable remainder trust?” or “Can an out-of-state person serve as executor in San Diego?” and even “What is a spendthrift clause in a trust?” Or any other related questions that you may have about Trusts or my trust law practice.