I do serve as a professional trustee, not just executor, or our Solo Ager clients. We’ll cover why our Solo Ager clients are looking for a professional trustee, why they don’t use banks, and how much it costs to hire a professional trustee.
Disputes between trustee and beneficiary
Why are our Solo Ager clients looking for a professional trustee? The main reason is because of potential disputes between the trustee and the beneficiaries. Unfortunately, this kind of conflict is very common, even more so than between heirs and executors.
A trust creates a much longer relationship: an estate lasts a year, worst case 2-3 years. Even with tax issues and selling the estate assets, there is at least a finite relationship where the heirs can see the finish line. The heirs and executor can probably learn to put up with each other, because they know that there is an end in sight. Whereas, a trust can last decades. It usually deals with the duration of someone’s life.
A trustee usually has to make more discretionary decisions than an executor. Often, trusts are written so that the trustee can decide how and when to distribute money to a beneficiary. For example, a trustee can make a “distribution for the health and education or comfort” of the beneficiary. This can get very awkward if heirs and trustee all know each other (siblings, friends, cousins, etc.), and the heirs have to prove to the trustee why they need the money. The heirs may not want to disclose certain health or financial issues to a trustee who is close with them. Even discussing the heirs’ standard of living means that the trustee will know what the heirs spend their money on. There could be a lot of details that you wouldn’t share with your family or friends otherwise. This is why having a professional trustee could make the situation easier.
With an estate, the heirs are the people named in the will or the intestate heirs named by law if there is no will. A trust has multiple layers of beneficiaries. There are beneficiaries of the income of the trust and also beneficiaries who receive whatever is left when the trust maker dies. Those are very different incentives: the income beneficiaries want as much income generated and paid out to them as possible, whereas the beneficiaries at the end do not want the trust money to be spent or distributed so that they can still receive some. This can be a difficult balance even for professional trustees, so imagine how dicey it would be for a trustee who has a relationship with the heirs.
Naming a bank as trustee
Why not name a bank, trust company or other fiduciary company as trustee? Some of our Solo Agers have shared their experiences with us, and they tell us it often doesn’t work well because of minimums or bureaucracy.
Many of these institutions have minimum trust size requirements to qualify, or else they will just reject you. Surprisingly, these minimums can be quite high, because they only want to deal with people who have a lot of money. Even if your trust meets the minimum right now, make sure you have a sufficient amount to qualify by the time you actually need the bank to act as your trustee. For example, the bank’s minimum requirements might increase at a rate that outpaces the growth of your trust assets. If that happens, your trust may no longer be eligible and your trust won’t have a trustee anymore. Another example is when you need to use the trust money during your lifetime to pay the income beneficiaries or medical bills. Taking too much money out of the trust could also disqualify you from using the bank as your trustee.
What about the bureaucracy? We’ve heard from many folks that it is a frustrating and lengthy process just to get approved by the bank. This doesn’t necessarily relate to the minimum requirement; it just takes so long to get your application approved. You’d think it would be the other way around: a person entrusting an institution with their life savings should be vetting the banks! It feels more like asking the bank for a loan rather than asking them to be your fiduciary. On top of that, there is no guarantee you will talk to the same person each time. Whereas with a professional trustee, you know exactly who you hired.
For these two reasons, many clients have reported that they just gave up trying to deal with the financial institutions.
How much does it cost to hire a trustee?
In most cases, there is no cost now, because most trusts are usually revocable or a testamentary trust. So, you won’t need a professional trustee until you pass away. Since no one is doing the job now, there is no cost now.
Once a trustee is needed, the cost for a professional trustee is the same as an amateur. Just as with an executor, the trustee fees are set by state law. If it costs the same to use a professional trustee as it does an amateur, it’s a no-brainer to choose the experienced professional! It’s a fair assumption to assume it costs more to hire a professional trustee, but fortunately, that is not the case.
Thank you to our listeners who’ve submitted questions like this. It helps our Solo Agers to know that they’re in good company. If you have not done so already, click the link below to receive a free E-copy of my book, “The Solo Ager Estate Plan.”
Complete this form to receive your complimentary copy of Anthony’s Amazon best-seller, “The Solo Ager Estate Plan”