Introduction: Bob and Lori were
about to make an estate planning appointment with their attorney.
They were discussing who should manage their financial affairs if
they were unable. They had three children, so why not make it the
eldest of the three, first, and then simply chronologically from
there? If they follow that approach it could be the biggest mistake
of their lives!
The Job: Who to select for the job of
successor trustee or holder of the Power of Attorney (I just call
them all “the manager”) can be a tough one. The manager has to jump
in and take over the finances and investments when either Bob or
Lori dies and the other one becomes overwhelmed (or mentally
incompetent). This might not sound like all that much since the
eldest of Bob and Lori’s children is doing pretty well and has his
own investments, so why can’t he take care of his parents’ also.
The Choices: Here’s the spiel I
give my clients: There are two dominant groups to choose from.
First, you can pick a family member or friend. Second, you can pick
from the “other” category.
Family and Friends: If you
are picking from the first group you are looking for someone who is
part attorney, part financial planner, and part accountant. 95% of
the world is gone right there, including myself, so I am not
suggesting that I be named. You also need someone who everyone
trusts and gets along with. And lastly, but very important, you need
someone who has done well enough in life that he or she is retired
or semi-retired. This is due to the fact that, although you are
bestowing an honor, you are also piling a job on someone. And if
that person already has a full time job, just where does the time
come from? (And, yes, it is a lot of time. Having dealt with my
mom’s estate both before and after she passed, I can tell you it
took a load of time to do everything.) So Bob and Lori should
compare their eldest, along with the other two, to these
characteristics. How close to that ideal do they come. If none of
them pass muster then they are going to have to pick from the
Trust Companies: The “other”
category is made up of trust companies. And this includes banks.
Some people will say there is no way on God’s green earth that a
trust company is going to be allowed to take care of their money.
The reality is, however, that anything that you do all the time, you
tend to get pretty good at it. Just think about anything that you
have done multiple times. The first few times it took you forever
but after that you got better and better and more and more efficient
at it. That’s how trust companies work, too. Further, although the
trust officer may take a vacation, there is always another trust
officer to fill in. And if the trust company screws it up, they tend
to have very deep pockets from which to collect reimbursement. And,
though they are not uninterested, they are disinterested; this can
be very beneficial when there is more than one beneficiary or the
beneficiary is a minor.
Negatives to Trust
Companies: So is there a negative to trust companies? Of course!
On the theoretical down side, they charge for their services. But I
would tell your child to charge anyway since a good part of his or
her life is going to go towards this effort. So really no matter who
you select, there could well be a charge.
Factors to Consider: Any
factors to consider on which trust company to select? What about
whether all trust companies charge the same? Of course not. But my
experience is that one really never knows which one is the least
expensive. Why? Because those with low base fees typically have
higher transaction fees and those with high base fees, lower
transaction fees. So it is impossible to tell. What about investment
returns? Well, bad news here, too. There is no standard way for
trust companies to quote their returns (unlike mutual funds). So it
is difficult at best to compare returns.
Help You Select a Trust Company: Are some trust companies better
than others? Obviously! But who is good today can be bad 5 years
down the road. So any document should have some sort of kick out
provision so that the management can be swapped to a different trust
company. And, indeed, this is where a good attorney can be quite
helpful because he can suggest who is good right now and what trust
company might be a good fit for you (that’s right, it’s not one size
You should be able to tell from the above that Bob and Lori better
reconsider their concept of whom to choose to serve. And they better
have the help of an experienced and knowledgeable attorney.