Last week we talked about the importance of completing estate planning, which will at some point require the choice of an executor, when drafting a Last Will and Testament, or successor trustee, when utilizing a Living Trust.
As I expressed last week, in my experience and opinion the preferable option for most families is to select a family member, likely an adult child, to serve in these roles. In situations where no suitable family member is identified, then a trusted and capable friend, again in my experience, can be a solid choice.
What about situations, however, where no suitable family member or trusted friend is identified. Situations, perhaps, where the children are not old or mature enough, or situations where there are long-term trust planning needs and the idea of burdening a friend for a long-term commitment is not appropriate.
In these circumstances there are a number of institutional options to be considered. The three primary options I would like to explore are law firms, bank trust departments and trust companies.
A law firm can be a comforting choice for grantors or settlors. Assuming it is the same law firm engaged in the planning process the estate planning attorney should have an understanding of the intentions in the trust, obviously, and an estate planning law firm will have an understanding of estate law and as a trusted adviser, the attorney and their firm have the capabilities to serve.
Having worked with a number of law firms in the planning process, however, I can add some observations. First, not all law firms are willing to serve as trustees or executors. Some simply do not have the resources to fulfill these duties, others may identify conflicts of interest for serving in these capacities.
Next, smaller law practices are sometimes one-person shops. If this is the case, what is the age of the primary attorney in the practice? Estate plans may not be activated for decades; will the attorney still be practicing? What will happen if the lawyer passes away, retires, or the firm is sold or merged? These are all questions to consider when considering this option. Then, of course, there is also the cost consideration. The law firm will need to charge for its services as trustee or executor, so it's important to understand the potential future costs and openly discuss options with the law firm during the planning process.
A bank trust department can also be an option in this process. Most community banks have trust departments which can serve in this capacity. The trust department will understand tax filing requirements and should have a basis of understanding financial management needs. Once again, there will be costs involved, and understanding these costs will be important when considering this option.
A couple observations on this option: the bank will likely require all trust funds remain under its custody, which may limit investment options. The trust department may also have turnover as employees come in and out of the department in their careers, sometimes frustrating beneficiaries. And one observation of caution, not meant to irritate my banking colleagues, many of whom I think are excellent, but I have yet to experience a circumstance where trust beneficiaries express satisfaction with trustee services provided by a bank, and I have encountered bank trusteed trusts dozens of times in my career. The reasons for the dissatisfaction vary, but the general observation has been consistent. So, just be aware.
The third option is a trust company. A trust company is likely to work in conjunction with an investment advisory firm and will often delegate asset management of the trust to the introducing financial advice firm. The benefits of a trust company are that the relationship-oriented financial advice firm is likely to stay involved (once again be mindful of advisor age), but trustee fiduciary services will be partitioned and administered separately.
Our firm strategically partners with Private Trust Company in this capacity, but again a couple things to consider. Private Trust Company does not accommodate the trust owning residential real estate for an extended period, and cannot administer assets such as LLC interests or closely held private stock or interests in a business. In my experience these restrictions are common with trust companies, so it’s important to thoroughly explore the capabilities of a trust company. And, once again, there are cost considerations, as layering trustee services and investment advice services can get expensive as well.
LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stock investing includes risks, including fluctuating prices and loss of principal. No investment strategy can guarantee a profit or preserve against loss. Past performance is not a guarantee of future results. This material may contain forward looking statements; there are no guarantees that these outcomes will come to pass.
Marc Ruiz is a wealth advisor and partner with Oak Partners and registered representative of LPL Financial. Contact Marc at marc.ruiz@oakpartners.com. Securities offered through LPL Financial, member FINRA/SIPC.