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Putting the “Trust” Back in Trustee

Putting the “Trust” Back in Trustee

For families using a trust to protect and transfer assets to succeeding generations, choosing the right trustee is critical.

Trustees—who can be an individual such as a relative, or an institution such as a bank—are responsible for managing all the assets within a trust for the benefit of its beneficiaries.

It’s tempting to name as trustee someone who has our complete confidence, such as a spouse, a brother-in-law, or a close friend. But the truth is that being an effective trustee is usually way over an amateur’s head. They likely don’t have the proper insurance coverage to act as a trustee, opening them to enormous personal risk. And they usually aren’t knowledgeable about who to hire—or what to pay—for investment managers and other experts.

Furthermore, most non-professionals just don’t have the time to properly oversee a trust, and if they are friends or family, they may also lack the objectivity to make sound decisions. Finally, an individual trustee may pre-decease all of the family members affected by the trust, creating a crisis of continuity.

For these reasons, many families choose a trust company or other corporate trustee. But this approach can have serious drawbacks as well. Compensation for trust officers is often relatively low, which affects the quality of employees tasked with serving clients with significant and complex wealth.

Lower compensation also leads to a revolving door effect, as inexperienced officers who are unfamiliar with clients replace veteran trust officers.

On top of all these concerns, the corporate trust model is tainted by financial conflicts of interest. The typical corporate trust business derives most of its revenue from asset management. Thus, trust companies and trust departments within banks face the temptation to use in-house asset management, even if better outside alternatives are available. And if investment performance suffers, it’s the rare trust officer who will recommend firing his employer as asset manager.

In choosing a trustee, the trust “consumer” faces a dilemma. The trustee role may be too large, complex and risky for a family member, friend or other individual. On the other hand, institutions with the insurance, administrative capabilities and trust expertise that consumers need may not be completely, well, trustworthy.

Unfortunately, consumers have long been limited to choosing between these two imperfect solutions when selecting a trustee. We believe they deserve a new option: The ability to combine the strengths of individual trustees with those of corporate trust providers.

What if trust clients had the flexibility to form a trustee “board?” What if they could name to the board trusted family members or friends, along with handpicked experts in trust and estate, law, accounting and real estate? And what if this board of trust advisors gained liability protection as well as administration, financial reporting and other services by teaming with an un-conflicted trust company?

It would be the best of both worlds and an evolutionary leap forward in the empowerment of families as they plan their estates. When might this leap occur? The sooner the better! Trust consumers deserve no less.

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About Steve Lockshin

Steven D. Lockshin is the Founder of AdvicePeriod and Chairman of Convergent Wealth Advisors; author of "Get Wise to Your Advisor".
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