Many people initially look to friends and family members to act as Trustees for Trusts created under a Last Will for their children. The prevailing thought is that the family member or friend will be more invested in the lives of the children and will therefore do a great job. The clients also believe that it will be the most cost effective approach to naming a Trustee because the friend or family member may choose to take little or no compensation.
Although friends and family members might do a good job, I have experienced enough cases where that is not the case that I suggest considering the use of a Corporate Trustee. This is not to say that the family member or friend would not be well intentioned in their efforts. They almost always are. The problem is that they do not always know the best way to approach the job as trustee. They do not fully understand the investment options or the income tax considerations. They often tire of having to deal with the minutia of the job including, but not limited to, the need to field the calls from beneficiaries who want their money. These potential negatives can serve to cost the Trust more in loss than the fees saved by naming the individual trustee.
Many clients are now opting to name a Corporate Fiduciary, such as a bank or financial institution, as the Trustee. The key component to this shift is that the clients are now naming the friend or family member to act as the Trust Protector. The Trust Protector is given the power to oversee the actions of the Corporate Trustee. Most importantly, the Trust Protector is given the power to remove and replace the Corporate Trustee. This gives us something that is close to the best of both worlds, professional advice and management and family involvement.
Read our article Choosing a Trustee: Individual Trustee vs.Corporate Trustee to find out the advantages and disadvantages of either scenario so you can pick the right trustee for your trust.