Professional trustees

When a client comes into my office, one of the first things we discuss is whether or not they have a trusted friend or family member to act as their successor. This may be a successor trustee in the case of a living trust, or an executor in the case of a will. Many clients don’t.

This usually leads us to the discussion of using a professional trustee. Most people think of a bank as a professional trustee, but there are other options as well.

A bank’s trust department is going to follow the terms of your trust exactly how they are spelled out. They are not going to take any risks or make any interpretations about the terms of your plan that will increase their exposure. This is because trustees are personally liable for acts undertaken while acting as trustee. This means that they are liable to your beneficiaries for any negligent acts and may have to pay your beneficiaries out of their own pockets if a loss occurs. You may be thinking, “Well, I want them to follow my terms exactly,” and you may be right. You may also be wrong.

It is basically impossible to write a legal document that will account for every future contingency and to give instructions to your successor trustee on how to handle them. Therefore, we must give our successors some discretion and leeway so they can “roll” with what the world sends their way. But with discretion comes potential liability – as we discussed, bank trustees don’t like liability. What happens? They simply take the safe and simple route, which may not be in the best interest of your beneficiaries, and they are entitled to do so.

Another aspect most people don’t know is that bank trustees hate real estate. Why? Because although it is a good investment, it is more difficult to manage than a cash and/or stock portfolio. Cash and stocks are a bank’s business, it is comfortable managing them and can do so effectively.

I recently discussed this issue with an attorney from a large national bank and she mentioned that when they take over a trust they just about always petition the court for permission to force the sale of the trust’s real estate even over the objection of any beneficiaries. If having your successor trustee hold onto your real estate is important, then you should look elsewhere.

Trustees are usually compensated for their time. Banks have fee schedules that far exceed what friends and family would normally warrant. For instance, not only do banks usually charge the base one percent to one-and-a-half percent, they also charge for coordinating the preparation of tax returns, selling property, etc. Their fees can get pretty high pretty quickly.

I don’t mean to disparage big banks. As I’ve said, they will administer your trust or estate by the book. If that is what you want or you have beneficiaries that will take advantage of a family member trustee, then big banks are the way to go.

If you don’t have a friend or family member you trust and don’t like what you’re reading about big banks, then you can look to smaller, independent professional trustees. These fiduciaries are licensed by the state of California, bonded and usually belong to associations like PFAC, the Professional Fiduciary Association of California. You can also see more at the Department of Consumer Affairs Professional Fiduciaries Bureau, (Fiduciary.ca.gov/).

These smaller, and often local, fiduciaries are every bit as experienced but can be more flexible with trust terms and will usually take the time to get to know you (the settlor) and can act more in line with your wishes. In the end, aren’t your wishes for your estate the most important part?

Eric S. Gullotta, JD, CPA, MS (Tax) focuses on estate planning and taxation law. His office is located at 232 West Napa Street, Suite A, in Sonoma. Contact him at 938.7234 or visit Gullottalaw.com.