For small trusts, having a close friend or family member as the trustee is probably just fine. But for large trusts with unique assets, they are typically not up to the task. Choosing a trustee is an important decision that requires careful consideration. While some people may choose to use “Uncle Ralph” as their individual trustee, there are several reasons why this may not be the best option and why an independent trust company like Pacific Trust, is the better choice.
Expertise - An individual trustee may not have the expertise or knowledge required to effectively manage the trust's assets. Managing a trust can be complex, and it requires an understanding of legal, financial, and tax-related issues. Unless the individual trustee has experience in all these areas, they may not be equipped to make the best decisions for the trust and its beneficiaries. Mistakes can be costly. Corporate trustees have experienced professionals who are equipped to manage through the challenges that may arise. Bias - Despite best efforts, an individual trustee may have a difficult time remaining impartial and/or maintaining the appearance of impartiality. Because the trustee may have personal relationships with the beneficiaries, they may be biased towards certain individuals or groups. This can lead to accusations of favoritism or unfair treatment, which can damage relationships and cause long-term damage to the trust. A corporate trustee is free to make tough calls without being worried if we will be invited to the next family barbecue. Continuity - Uncle Ralph isn’t going to live forever. If the trustee becomes incapacitated, passes away, or otherwise becomes unable to perform their duties, it may be difficult to find a replacement trustee who is familiar with the trust and its beneficiaries. In many cases, trusts are created to last in perpetuity. A corporate trustee doesn’t die. Instead, we are designed to provide uninterrupted service for generations. Burden - Trust administration often includes more administrative tasks than an individual trustee is prepared to take on, especially with trusts holding unique assets. From financial reporting to evaluation and administration of distributions, to legal notifications, a corporate trustee can take the administrative burden off a family member, friend, or business acquaintance. We are singularly focused on the administration of your trust allowing us to be thorough, accurate, and timely in our work. Personal Liability - A trustee can be held personally liable for any losses incurred by the trust due to their negligence or breach of fiduciary duty. This means that if the individual trustee makes a mistake that results in financial losses to the trust or its beneficiaries, they may be held responsible for those losses. Corporate trustees have procedures to minimize errors from happening, but if an error does occur, insurance is in place to cover the potential loss. Conflicts of Interest - An individual trustee may have their own interests that conflict with the interests of the beneficiaries. For example, if the trustee is also a beneficiary of the trust, they may be tempted to prioritize their own interests over those of the other beneficiaries. This can create tension and disputes that can be difficult to resolve. A corporate trustee is regulated and held to the highest fiduciary standard. But what about the fees? The most expensive money you will spend is on inexpensive legal and accounting work. This is true when using an individual trustee instead of paying for the value provided by a corporate trustee to serve as a fiduciary. While using an individual trustee may seem like a convenient, less expensive option, it's important to consider the potential risks and drawbacks. By choosing a professional trustee with expertise in fiduciary, legal, financial, and tax-related issues, you can help ensure that the trust is managed effectively and in the best interests of its beneficiaries. At Pacific Trust, our only agenda is attending to yours.
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