Making the Right Choice

Clients often name a friend or relative as a trustee based on that person being “the responsible one.” The friend or family member may even feel honored in being named to serve in this role. It sounds like a perfect arrangement, doesn’t it? But is it? All too often, the answer is “No, it is not appropriate.” Most people have no idea what it really

means to be a trustee and how much work it entails. The responsibilities involved are often complex and time-consuming. It may even prove to be overwhelming for those who lack the time, experience, and specialized knowledge required to administer the role properly.

Consider this real life example. Recently, we heard from an investment professional that she was overwhelmed, frustrated, and even annoyed with her role as trustee, assigned to her by her favorite uncle. She now describes herself as a combination of art dealer, bill collector, investment analyst, bookkeeper, property manager, business executive, tax specialist, secretary, and financial counselor. She feels that she now has an additional full-time job–and rightly so.

“Why me?,” clients may ask. In this woman’s case, it turns out that her uncle always felt that she was the responsible one in the family, the smart one. Furthermore, he told her that he’d get everything organized ahead of time, so it wouldn’t be a lot of work. Ah, famous last words, coming on the back of such a high compliment. However, the outcome is that she is now under tremendous stress, and fond memories of her uncle are now clouded by aggravation.

So as your clients name their trustees, it is imperative that they think beyond the question of: “Is she a responsible, intelligent person?”

With that in mind, in this article we will provide you with a framework to help you work with your clients in their decision-making. While it can be challenging for clients to make such an important selection, it should never be a linear one, since we know a trustee must wear many hats. (See sidebar “Responsibilities of a Trustee.”)

Thus, it is imperative that, before naming a trustee, clients are educated on what a trustee is and who is appropriate to assume the role. When determining a trustee’s overall responsibilities and figuring out who should be a trustee, considerations should go beyond the duties and take into account the relationships among family members.

To do that, there are five questions your clients should ask themselves before selecting a trustee.

The first question focuses on “trust.” Do your clients trust this person to be true to their interests? Will this person put your clients’ interests ahead of his own interests? Remind your clients that they are leaving the decision-making to someone they most likely will not be around to oversee.

Second, are they focusing more on themselves in the selection process than on the potential trustee? Although the choice may feel right to your client, is it equally acceptable to the trustee?

To determine if the selection is the right fit, ask your client to consider these issues: Does the trustee’s personality, career, and lifestyle afford the time to devote to the responsibilities of being a trustee? Is she detail-oriented and organized? Does he have the investment expertise to manage the trust assets? Will this be an overwhelming burden to the named trustee that could affect her performance in this vital role?

In addition to these considerations, your clients should also be aware that, even if the selected person has never previously served as a trustee, most state laws require that a trustee be held to a high standard of performance. Therefore, ignorance is not bliss; there are legal ramifications in the person’s role as trustee.

If a client is insistent about appointing a person who may not entirely fit the bill, you may want to suggest a co-trustee–one who you know has the requisite skills and capabilities to complement the first choice. With different skills, a co-trustee can be a favorable solution, as long as there are procedures in place to resolve, for example, a deadlock in decision making between the trustee and co-trustee.