In this episode of Absolute Trust Talk, Kirsten Howe and associate attorney Jessica Colbert continue their in-depth discussion on selecting a successor trustee, with a focus on third-party options. They explore key considerations when choosing a licensed professional fiduciary, breaking down the advantages and potential drawbacks of this option. Additionally, they provide insights into other alternatives, such as corporate trustees. Whether you’re making this decision for the first time or revisiting your estate plan, this episode offers practical advice to help you choose the best trustee for your unique needs. Tune in now for expert guidance!
Time-stamped Show Notes:
0:00 Introduction
0:40 What is a Third-Party Trustee? Kirsten and Jessica explain the role of third-party trustees, focusing on licensed professional fiduciaries and why they might be a great option for your estate plan.
1:53 Curious about the advantages of naming a licensed professional fiduciary as your trustee? This segment highlights the key reasons why it could be the right choice for you.
4:19 Every option has pros and cons—here’s what you need to consider when thinking about selecting a licensed professional fiduciary.
5:48 If family members or third-party trustees aren’t ideal, there’s another route: corporate trustees. Learn why this might be a good alternative.
8:43 Key Takeaways in 60 Seconds: Pressed for time? Get the most important advice from this episode in just one minute.
Transcript:
Hello and welcome to Absolute Trust Talk. I’m Kirsten Howe, and Jessica Colbert, one of our associate attorneys, is joining me here. This is our video podcast at Absolute Trust Counsel.
In our last couple of episodes, we’ve been discussing selecting a successor trustee. We discussed the qualities to look for and the pluses and minuses of naming a child or multiple children. And now, we’re going to talk about another alternative: naming a third party, someone who is not a child. There are a couple of options, and we’ll go through them one at a time.
Jessica, when I say naming a third party, what are we talking about?
It could be another relative, not one of your children, or a friend. We also like to talk to our clients about licensed professional fiduciaries.
Let’s discuss what that means for our listeners who aren’t familiar with it.
A licensed professional fiduciary is a professional who serves as a professional trustee. They have to go through specialized education. They’re licensed, and they have to go through background checks and fingerprints, so you can trust that they’re a good option.
These are people who, this is their business—what they do. They’re not lawyers, but it’s analogous to that. It’s analogous to being a CPA. You have a business being the trustee for people who are not their family members.
If anybody listening is interested in learning more about that, they have their own professional organization. It’s called the Professional Fiduciary Association of California, or PFAC, and they have a website. You can read about them.
Choosing a licensed professional fiduciary has – like everything – its pluses and minuses. Let’s first focus on the pluses.
Some of the positives are that they know what they’re doing. This is their job. They do trust administrations every single day, so that makes it faster. The administration can go quicker and more efficiently because they know what they’re doing. Also, because they know what they’re doing, they usually tend to save on legal fees because they don’t have to consult with an attorney so much. They know what to do and can do a lot of it independently.
By naming a professional and not a family member, you can also take the drama out of it. In our previous episode, we talked about some conflicts that could happen by naming a child. By doing this, you remove that.
Right, this is just someone doing a job. The kids are not already teed up to be mad. I want to re-emphasize that they save a lot of legal fees. We have professional fiduciaries that we represent. They are our clients. They come to us for legal help with the trust administrations. We do a little bit, and then we hardly see them. They’ll come back for little issues here and there, but our family member trustees need a lot of help. They don’t know what they’re doing, so this can be a nice, economical option, believe it or not.
Speaking of money, one objection we hear often from our clients when we suggest hiring a professional trustee is, “Oh, but they charge money for their services. I don’t like that.”
Yes, they do charge for their services, but what many people may not realize is that any trustee can charge for their services. If you name a child or a brother, those people can also be compensated for their services.
They should be because, as we’ve said numerous times, this is a lot of work. People have real lives, and this eats into their real life. They should be compensated for that. The objection to a professional because they charge, I have a hard time with that one.
Let’s talk about the minuses associated with using a licensed professional fiduciary.
Many licensed professional fiduciaries tend to be solos, and they also tend not to be very young. So, there is a concern that if you name someone to be your successor trustee many decades later when they might need to step in, they may not be working anymore. Right, they’re human beings, and they retire, and they die, all those things that happen to human beings.
One thing that we have found our clients like sometimes when they’re thinking about naming a professional, is instead of naming a given professional…Jessica, maybe you can finish that up.
Yeah, so instead of naming the professional yourself, you can give someone else the authority to pick that professional. You can say, “My daughter will appoint a licensed professional fiduciary as trustee.” At that time, someone you trust can find someone currently working and appoint that person as trustee.
That way, you’re not giving the job of the trustee to a child, which is what we’re trying to avoid, but you’re just making that trustee choice in real-time, as opposed to 20 or 30 years ahead of time.
In addition to a relative, friend, or licensed professional fiduciary, there’s one more alternative. Jessica, why don’t you talk a little bit about that?
That alternative is a corporate trustee. Most large banks have a trust department that can serve as a corporate trustee. Instead of one individual, you would actually have Wells Fargo as your corporate trustee — just an example: I’m not advertising for Wells Fargo.
There definitely are pluses and minuses here, of course.
Many corporate trustees have minimums, so they won’t take on a trust administration unless the trust assets hit a certain minimum.
Another related aspect is that corporate trustees sometimes do not like to deal with certain types of assets. Some of them don’t like real estate, and as soon as they become the trustee, they’re going to want to sell all the real estate. So, if you’re looking at corporate trustees and you have certain types of assets and you want to keep those in the family, you might interview them and just find out what their policies are about these assets.
Another possible minus is the fees. Corporate trustees will also charge their fees for the service. The corporate trustees will generally charge a percentage fee. So, if the total value of the trust estate is $2 million, they’ll charge a fee that’s around 1%, maybe 1.25% of that. If the trust is an ongoing trust that carries on for years and years, they will annually charge some fee, and it’s usually a percentage. You need to be aware of that and be okay with that.
On the plus side, these are more likely to be around forever. It’s not guaranteed, but a corporate trustee is more likely to be around when the time comes than a licensed professional fiduciary. Yeah, but it’s not guaranteed. Five or six years ago, I had a case where a corporate trustee was named and then disappeared. The trust document was 30 or 40 years old, and that corporate trustee was gone. We had to go to court and get a different trustee appointed. But that’s rare. That doesn’t happen very often.
What would you say is the bottom-line advice from this conversation about selecting a successor trustee?
Think about all of your options. If you have children, talk to your children during the planning process to get their honest feedback on whether they would want to serve as trustees. If the children think they could work well together as trustees, get their feedback. None of them would want to, and you’ll consider doing one of the professional options. It’s important to keep that conversation open.
I would add that if you’re having conversations with multiple children, it might be informative—illuminating even—to talk to them one-on-one. You might be surprised. You might hear some things that you had no awareness of, and those are important facts to take into account when you’re making this very important decision.
Thanks, Jessica. This was very informative. I hope it was also for our audience, and I look forward to connecting with you next time.
Resources Related to This Episode:
- Absolute Trust Talk Episode 149: Choosing a Child as Your Successor Trustee: Key Factors to Consider https://absolutetrustcounsel.com/149-choosing-a-child-as-your-successor-trustee-key-factors-to-consider/
- Absolute Trust Talk Episode 148: How to Choose the Right Successor Trustee for Your Trust https://absolutetrustcounsel.com/148-how-to-choose-the-right-successor-trustee-for-your-trust/
- Absolute Trust Talk Episode 090: Choosing a Trustee – How to Get It Right https://absolutetrustcounsel.com/090-choosing-a-trustee-how-to-get-it-right/
- Absolute Trust Talk Episode 010: Thinking Outside the Family – Special Needs Trusts & Professional Fiduciaries https://absolutetrustcounsel.com/thinking-outside-the-family-special-needs-trusts-professional-fiduciaries/
- A Will is Not Enough – Securing Your Legacy with Estate Planning Life can change in an instant. A will is not enough to be prepared. Get free access to our actionable E-book Guidebook #1 and start protecting your legacy today. https://absolutetrustcounsel.com/guidebooks/
- Learn how to comfortably define gray areas and assess your own unique needs to effortlessly build a secure future now. Check out Guidebook #2, Estate Planning Beyond the Basics, here > https://absolutetrustcounsel.com/guidebooks/
- Get our free introductory guide to the most used estate planning tool, family trusts, and understand how we plan to help protect your family. Guidebook #3: https://absolutetrustcounsel.com/guidebooks/
- Absolute Trust Counsel would love to offer access to our Incapacity Planning resource page: https://AbsoluteTrustCounsel.com/Incapacity-Planning/. We’ve collected our top planning information all in one place so listeners can find videos, guidebooks, blog posts, and a host of information with tips and strategies on implementing, planning, and protecting themselves and their loved ones.
- We’re pleased to provide a library of e-books to address common estate planning questions and concerns in practical, easy-to-understand language. https://AbsoluteTrustCounsel.com/Resources/.
- ASK KIRSTEN: If you’d like Kirsten to answer your question on the air, please email her at Info@AbsoluteTrustCounsel.com.
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