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Are you ready to be a personal trustee?

Feb 17, 2021 | Angie O'Leary


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To ease the burden and legal exposure, appointing a professional trustee is worth considering, especially for individuals with larger or complex estates

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The COVID-19 pandemic has put a spotlight on legacy planning by highlighting the need to get estate plans in order—a task most of us have admittedly neglected. Factor in the prospect of a lower estate tax exemption in the near future and an aging, affluent Baby Boomer population and it seems 2021 is the perfect time to focus on estate planning.

Even before the pandemic hit, many people anticipated needing a trust knowing the current elevated estate credit is set to expire in 2025. The pandemic further increased the urgency by forcing people to think pragmatically about whether their financial and legal affairs are in order in the event of an illness or death.

Trusts help provide peace of mind for loved ones and allow people to control where their assets go after their death—without the hassle and cost of probate. For high-net-worth individuals (HNWIs), trusts serve as means to protect assets, safeguard against spendthrift tendencies, maintain privacy and reduce estate and gift taxes.

Understanding the complex role of a personal trustee

One key component of establishing a trust is determining who will serve as the personal trustee. The duties of a personal trustee are many and can often feel burdensome if not managed properly. There are both the technical and administrative aspects to consider, as well as the impact a role of this nature could have on family harmony.

Say, for example, one of your siblings is named trustee of your parents' estate and you've never really gotten along with that sibling. What sort of dynamic does that create in the family? Some of the responsibilities of a trustee are so daunting that we've had individuals currently acting as a trustee for a family member or friend ask if there were other options.

It's critical that anyone named as a personal trustee understands and agrees to the myriad responsibilities of the role. In fact, the more a personal trustee is able to step into their role with eyes wide open, the more successful they'll likely be in carrying out their loved one's wishes.

The many responsibilities of a personal trustee

It's more than an honor to serve as a trustee, it's a serious commitment that comes with serious fiduciary responsibilities such as investing, paying bills, tax reporting, fulfilling obligations to current and future beneficiaries, and following strict compliance requirements. For anyone lacking experience in these areas, the responsibility can be overwhelming.

The appointment also comes with some risk, particularly for trustees of larger estates, who need to balance the needs of current and future beneficiaries. This can leave them exposed to legal action by those beneficiaries.

Consider a professional trustee

To ease the burden and legal exposure, appointing a professional trustee is worth considering, especially for individuals with larger or complex estates. A professional trustee will assume responsibility for a host of time-consuming administrative and record-keeping tasks. They also take on fiduciary and legal obligations. The trustee will see that the assets in the trust are managed and administered properly including the necessary reporting requirements.

Another option would be to appoint a professional trustee to act as a co-trustee. Bringing in a professional to serve alongside your client offers many benefits, including shifting most of the trustee's legal liability away from the personal trustee, while keeping them involved in the big decisions.

If a professional trustee isn't a viable option for your family and you'd prefer to hand that role to a trusted loved one, it's critical to ensure that person is fully aware of your wishes, as well as the duties and risks of the appointment. You don't want to put them in the challenging position of having to grasp the role and all of its complexities on the fly—all while trying to navigate family dynamics.

Directing important decisions

Once you make the decision to fund a trust as part of your estate planning, you must then select who can best carry out your plans. “Who do I choose as my trustee or co-trustee?” becomes a critical planning question.Estate planning may not be top of mind for most people. Planning for after your death is a difficult conversation to have with yourself, let alone your family and friends. However, it's crucial if you want reassurance that your assets will go to the people you love. Be prepared and take the first step in legacy planning.

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Wealth planning