Stautz Law

Tag: Trustee

  • Choosing Trustees for Testamentary Trusts

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    Hi folks, it’s Andy Stautz with Stautz Law. I am back for another general informational video about Indiana law. Today we’re talking about testamentary trusts, specifically your choice of trustee, choice of fiduciary for your testamentary trust.  

    So I’ve recorded lots of talks about how testamentary trusts work, what they are, But basically, it’s a trust that you create in your will. So the trust doesn’t exist until the will is probated. Now all of a sudden, okay, we’ve got a trust.  

    Why the Choice of Trustee Matters

    Just like for any other trust, you need a trustee. That’s the person who is in charge of carrying out your instructions. And the choice of trustee is really important, really important, okay, because You can put any instructions you want in a trust, just about, I mean, you know, within reason, but you can get as creative as you want in the drafting. You can write any rules you want, you can make it complicated, you know, wish lists go crazy.  

    But push comes to shove, a trust only actually works, you know, Legal validity aside, a trust only actually works, only does what you want it to do, if you’ve got a trustee who’s going to carry out your instructions. That’s just behavioral hard truth. I mean, you can’t make something happen unless the trustee does it for you.  

    So you want to get it right. You want to choose a trustee who understands what the instructions are, and it’s going to carry them out and that you can count on.  

    General Trend: Individual Fiduciaries

    So the trend, and it’s been an ongoing trend since long before I was in practice, is to have like individuals, family members, friends, et cetera, serve as trustees. Okay, because I think this has to do with like bank consolidation and the loss of trust departments and increasing fees and requirements. So for many people with a small estate planning trust, right, they’re not going to have a big bank handling it for them. They’re going to name a family member or a friend.  

    Considerations in Choosing Testamentary Trust Trustee

    First Consideration: Can Your Trustee Do the Work?

    And as we’ve discussed in the past, that introduces behavioral risks, right? Because you need to make sure your trustee knows how to do the actual work of being a trustee. like making accountings, keeping an inventory, reporting to the beneficiaries if they need to do that… actually can . . . has the financial and administrative savvy to carry out the trust instructions. 

    Second Consideration: Trustee Conflicts?

    The second point is, you need to make sure it’s someone whose interests align with your interests as regards to the trust. So you don’t want a situation where the trustee is tempted to co-mingle funds or to apply trust funds to benefit his or her own life, et cetera.  

    And a common scenario here is, okay, what about the parent of a minor? If the parent of a minor is a trustee for that minor, they’re constantly going to be facing decisions like, okay, do I use my own money to pay for, childcare expenses, et cetera? Or can this be a trust distribution? Can I use trust money? And, that’s . . . maybe it doesn’t make a difference, right? But it’s something to think about. Do you want your trustee to be in a position where they make that choice or face that temptation?  

    And so, especially for testamentary trust, where the trust doesn’t have any history or pattern, it just comes into being once you’re gone. You need to be especially sure that your trustee or the person you’re thinking about naming as a trustee is going to accept the appointment, is going to know what to do, and you know, isn’t going to face conflicted decisions often or all the time about how to follow your instructions.  

    Conclusion: People and Values, not Hard Law

    This is not a realm of legal certainty, right? This is a discussion about values and people, and it’s very case by case and specific. So I realized it was general talk, but it’s one of the things we’ll talk about if you come to me for your estate planning, and it’s one thing you should definitely be talking to, you know, any attorney about if you’re in a place where you’re making a testamentary trust or considering one.  

    I hope that’s been a helpful overview. You’re on my website. Give me a call, give me an e-mail, and we’ll set up a time to talk about your specific facts. Hope that was helpful, and bye for now. 

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  • Pros and Cons of Different Fiduciary Choices

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    Hi folks, it’s Andy Stautz at Stautz Law. I am back talking about fiduciary choices. I just recorded a talk, but it got a little long and there’s more to talk about. So this is about the difference between corporate and personal or individual fiduciaries.  

    Two Types of Fiduciaries: Personal and Professional

    In my last video I mentioned that you want to think about the competence of your fiduciary, how they’re going to be doing emotionally, you know, kind of whom to choose. And I mentioned that one option is to use a bank or a trust company or an independent fiduciary and the other option is use a family member or friend.  

    Kind of two big categories. There might be more.  

    That’s what I think of. By far the two most common.  

    Advantages of Choosing Family Members as Fiduciaries

    So the advantage of a family or friend, just a personal fiduciary, is trust, right? You know them. It’s inexpensive and informal. I mentioned last time that you know, in probate cases, a lot of times a family member will “disclaim” — they will turn down the fee that they would ordinarily be entitled to. So that can be nice. You know, if someone just does it for you as a favor. Saves your heirs some money or saves your, you know, trust beneficiaries money. 

    Advantages of Choosing Professional Fiduciaries

    The other big option is corporate trustees. The advantages there are, you know, they’re good at it because they do it a lot. You know they’re going to cross their T’s and dot their i’s and you know they’re going to be independent. 

    That really helps with some of these behavioral trusts. You know, if you’re setting up a trust to protect a spendthrift from themself, you’ve got an addict or a gambling problem. If you name a family member or friend the trustee, they’re always going to be in conflict with the beneficiary, right? The beneficiary is always going to be going and saying… Wanting… putting pressure on the trustee.  

    A bank or trust company is going to have a much easier job of saying “no” and not harming existing relationships by being put in that role of standing between a trust beneficiary and the trust corpus.  

    Disadvantages of Personal Trustees and Executors

    Now the downside to family members, of course, is like I said, emotion. Personal relationships, you know. And also it’s a big ask emotionally. Practically you don’t necessarily know someone in your life who’s going to who’s in a good position to have the time, the expertise to administer a trust for you or to handle your estate.  

    Disadvantages of Professional Fiduciaries

    The disadvantage of corporate trustees or, you know, professional fiduciaries in general, is they’re going to be expensive, right? They’re not going to waive their fees. So that adds to the administrative cost of a trust. It adds to the expenses of an estate. You know, it can obviously be worth it. But that’s a consideration. 

    And some of these, trust companies and banks, there’s a minimum for them. Where they’re not going to administer a small, you know, grandchildren’s trust with $50,000 in it, right? It’s not worth their time. So below a certain threshold, you might not even be able to attract an independent professional fiduciary. You’ve got to be up into a certain level of assets and complexity for that to make sense.  

    Conclusion: Take Time to Think – It’s a Big Decision

    So those are kind of the considerations and like I concluded in my last video, you know it’s specific if it’s based on your goals. Whom you know, whom you trust, what you want to have happen. But it bears thinking about so. So do think about it before your initial planning meeting or after, because it’s an under-considered topic, I think, for most people, until they come in and say, Oh yeah. Big choice of whom to name.  

    Call me when you want to talk. I look forward to working through these problems and coming up with the best plan for you. Thanks and bye for now.

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