Choosing a Trustee: Family Friend or Corporate Trustee?

EDITOR’S NOTE:

In estate planning, many Dallas residents will set up a trust for the benefit of their children or others. When setting up a trust, one must designate a trustee. This blog post considers the pros and cons of a family member vs. a corporate entity as the trustee under Texas law.

Posted: August 18, 2015

Within the Estate Planning process, most clients choose to create trusts for the benefit of their children or loved ones after they have passed away. Such trusts can achieve many benefits – including protecting a beneficiary from his or her immature financial decisions and from those who might make a claim upon the inherited funds.

When a decision is made to utilize a trust for the benefit of a beneficiary, the client must make a critical decision: Should the trustee of the trust (every trust must have a trustee) be an individual or a corporate trustee. A corporate trustee refers to a bank or trust company which is in the business of providing trust services for a specified fee. An individual may serve as trustee, and depending on the relationship of the client to the trustee, may or may not charge a fee for his or her services as trustee. An individual may be a family member or friend, and should possess, at a minimum, the following skills:

  1. Knowledge and experience to invest the trust assets to both preserve them and give the funds an opportunity to grow;
  2. Exercise fair judgment in terms of making distributions from the trust for the benefit of the beneficiary in accordance with the terms as previously specified by the client in the written trust agreement.

Dallas, Texas - Trust Litigation AttorneysIndividual trustees, if they are close personal friends or family members, will often agree to serve as trustee without a fee. However, many such trustees later regret undertaking this service. An advantage a corporate trustee has over an individual trustee is that, despite the fact that the corporate trustee will charge its standard fee while some individual trustees will charge no fee at all, the corporate trustees are trained to both prudently invest the trust assets and to appropriately make trust distributions based upon the terms of the trust and the beneficiaries’ actual needs, consistent with applicable trust law. Some clients are fortunate to have family members who agree to serve as trustees without compensation and have no later conflicts with the client’s beneficiaries. Other individual trustees experience significant conflict with the beneficiaries when distributions are not made as the beneficiaries (often the children of the client) had hoped. This disappointment sometimes results in expensive litigation in which trust assets are often consumed to pay for attorney’s fees incurred in such a dispute. A corporate trustee is far more likely to be knowledgeable and observant of Texas trust law and better suited to manage conflict.

Clients are advised to carefully consider the benefits of both a corporate and individual trustee and be mindful of the dynamics which will impact relationships long after the client has died.

EDITOR’S SUMMARY

Unfortunately, trust disputes can arise. Often, a family member is designated as the trustee but fails to adequately perform his or her duties under Texas law. Many Dallas-Fort Worth Metroplex residents come to us for assistance on possible trust and estate disputes. Feel free to reach out for a consultation with a Dallas trust attorney, as each situation is unique.