The Pros and Cons of a Family Trustee vs. a Professional Trust Company
Managing a family trust is a significant responsibility that requires a good understanding of fiduciary duties and the complexities of financial management. As you consider whether to act as the trustee or to engage a professional trust company, it’s important to weigh the advantages and disadvantages of each approach. This article will provide insights based on a real-world experience from managing a family trust for 14 years.
Unreasonable Expectations from Siblings
The first challenge in managing a family trust is dealing with unreasonable expectations from siblings. One of my siblings, for example, demanded a written guarantee of the amount she would inherit. As the trustee, I was not empowered to provide such a guarantee since the money was already invested, and my mother was still alive.
She repeatedly sent me aggressive and inappropriate emails, and even lied to me about her financial situation. This proved to be the most negative aspect of being a trustee. Dealing with such issues can be emotionally and legally exhausting, highlighting the importance of clear communication and setting realistic expectations.
Record Keeping and Financial Management
One of the most time-consuming aspects of being a trustee is meticulous record keeping. You need to account for every penny that goes into and out of the trust and categorize expenses. When I took over, I was still managing one parent's expenses and paying bills, which added to the workload.
At year-end, the task becomes even more daunting as you need to consolidate everything, make a report, and file taxes. This involves going through pharmacy bills, nursing home statements, and other expenses. It’s a significant responsibility that requires attention to detail and organizational skills.
Fiduciary Responsibility
Fiduciary responsibility is a crucial aspect of being a trustee. If you make poor investment decisions, you are ultimately responsible for the loss. However, if you fail to manage the trust’s investments effectively, you can be held liable for a breach of your duties.
For instance, my parents had a significant account with a well-known investment firm that they had entrusted to a very aggressive broker. After careful consideration, I determined that it was a poor choice and had to change it. This decision required detailed due diligence and was also influenced by tax considerations.
Temptations and Ethical Issues
Even the most ethical individual can face the temptation to misuse trust funds, especially when dealing with significant sums of money over a long period. I recall one instance when I had the power-of-attorney, checkbook, and the means to hide the disappearance of a moderate amount of money, although I never came close to crossing that line.
However, without institutional controls or oversight, it’s crucial to remain disciplined and professional. Individuals with gambling or substance abuse issues or who are facing financial hardships can fall into serious ethical traps. Having a co-trustee can help mitigate these risks.
Ethical Considerations and Professional Relationships
Managing the relationship with a trust attorney, accountant, financial advisor, and bank can further complicate the process. These relationships may change over time due to retirements or other reasons, demanding additional time and risk of making poor choices.
For example, I had ongoing issues with our bank due to a misunderstanding involving a power of attorney. When I closed one account, they improperly disposed of the paperwork for a different account, leading to a series of bureaucratic issues that we still haven’t fully resolved.
These examples highlight the importance of having a robust system in place to manage these relationships and the paperwork that comes with them. Clear communication and documentation are essential to avoid misunderstandings and legal complications.
Conclusion
In conclusion, managing a family trust as a trustee involves numerous challenges, including dealing with unreasonable expectations, meticulous record keeping, fiduciary responsibilities, ethical issues, and managing complex professional relationships.
While it can be a personally rewarding experience to manage the trust for your family, it also requires a significant investment of time, expertise, and emotional and ethical considerations. Engaging a professional trust company may offer a more efficient and secure option, especially for those who are not prepared to handle all these complexities.