Should I Hire a Trust Officer? 7 Benefits and Tradeoffs to Consider
When you’re establishing a trust for a loved one, one of the first decisions you need to make is who will act as trustee. Many people will ask a family member to serve in this role, while others choose a professional trustee – known as a “trust officer” or “trust administrator” to fulfill these duties. If you’re trying to decide whether choosing a professional is right for you, here are some of the pros and cons to consider.
Upsides of Hiring a Professional Trustee
Expertise in Trust Administration
Because their job is to manage and administer trusts, professional trustees have deep knowledge about how to fulfill this role and execute the day-to-day duties. They’ve likely been doing this work for years. When a family member is taking on this role for the first time, it can be difficult to navigate the rules and responsibilities of being a trustee. Getting up to speed can be time-consuming and frustrating even when a relative is eager to help out; and with all the regulations trustees are required to follow, it can be a relief to work with someone who knows how to stay in compliance with trust laws, investment considerations, tax regulations and potentially public benefits options.
A Network of Experts
In addition to their own expertise, trust administrators often maintain a network of professionals who can support them in this role; some may even have these experts on their teams. Having a go-to expert for legal and financial help can streamline their processes, while family members may have to start from scratch to find the right professionals to support them. In the case of specific types of trusts, like a Special Needs or Supplemental Needs Trust (SNT), professional trustees may also have in-house support in the form of case managers or benefits officers who can help a beneficiary take advantage of public benefits or other programs that help supplement the trust’s resources. And if the trust includes real estate, some trust officers will include property management as part of their services.
Helps Family Maintain Healthy Relationships
Another reason families may choose to hire a trust officer is to separate the financial relationship from the familial one. Because the person in this role must make decisions about how money is used and whether requests for funds made by the beneficiary (who is often a family member) are approved or denied, this can cause tension in the trustee-beneficiary relationship. Hiring a professional to administer a trust can take some of the pressure out of the equation and allow the family members to stay in a more advisory or advocate role.
When drafting the trust document, you will also need to decide on a list of successor trustees who will take over the role if the initial trustee is unable or unwilling to serve. In cases where the trustee is expected to outlive the beneficiary, it is likely that the successor trustee would inherit these responsibilities. It can be unsettling for a beneficiary to navigate this shift and hard for a new trustee to get up to speed. Working with a professional trustee can provide more continuity – even if the professional retires, the trustee role will likely pass on to someone in the same practice or financial institution who uses the same processes for trust administration.
Tradeoffs of Hiring a Trust Officer
One of the most common reasons families choose not to hire a professional trustee is because of the costs, since relatives typically take on this role for free. Trust officer fees typically range from 1-3% of the estate value, though there may also be account minimum fees and other costs added on for property management, case management, and other services. However, professionals would argue that these fees are worth it when compared to the cost of an inexperienced family member poorly managing the trust assets or making mistakes that result in lawsuits.
Building a Relationship from Scratch
Because a trust officer hasn't’ been in a beneficiary’s life as long as a family member, they will need to be intentional about earning the confidence and trust of the beneficiary. If the beneficiary is not accustomed to having to ask for money or follow the processes needed to keep the trust compliant, the beginning of the trustee-beneficiary relationship can be rocky. If you choose to go the professional trustee route, make sure they have a plan in place for working effectively with your loved one.
Unfamiliar with Family Dynamics
In addition to getting up to speed on the beneficiary’s interests, needs, and communication styles, a professional trustee will also need to work to understand family dynamics. Even if the trust officer is intentional about learning family member’s unique relationships with each other, they likely won’t have as in-depth of an understanding as someone who is in the family. Especially in the early days, it can be difficult for a professional trustee to know who the beneficiary goes to for advice, who might put the beneficiary – or their assets – at risk, who has influence over a beneficiary, and who has the best insight about the beneficiary’s true needs.
For some families, hiring a professional trust officer is the right choice for them; for others, naming a family member as trustee is the best decision. Hopefully these pros and cons help you determine if a trust officer is right for you. And if you find yourself considering a professional trustee, here is a list of questions you should ask.