Many people use trusts as a time-tested tool for wealth management, charitable contributions, estate planning, and providing for loved ones. At the heart of any trust structure is the trustee, the individual responsible for managing and administering trust assets. While you can technically appoint anyone to serve as the trustee, it is crucial to consider hiring a professional trustee for wealth management to protect your wealth and safeguard the financial security of those you love the most. Here’s why you should hire a professional fiduciary to serve as a trustee and help with managing wealth.
Why Hire a Trustee for Wealth Management?
When it comes to trusts, it’s important to understand that these are incredibly flexible tools you can use to achieve a wide range of specific goals, such as minimizing taxes, providing protection from creditors, or, of course, managing wealth.
Still, no matter how expertly designed a trust may be, it cannot be fully effective without the hands-on attention of a dedicated trustee for wealth management who has considerable financial expertise and experience navigating trust laws.
A trustee has a myriad of different responsibilities to juggle, from understanding and administering the trust per the trust terms, to investing and distributing assets, to overseeing accounting and tax compliance, to keeping the trust profitable so that your wealth can continue to grow.
To further complicate matters, unlike executors of an estate, whose work usually ends once the estate is settled, a trustee can be performing this role for decades.
Another consideration is that trusts with a substantial amount of assets and wealth are more complicated, meaning they will be more challenging for the average person to manage. If you have a family business, for example, this can be challenging to manage.
Failure to understand these responsibilities or an inability to fulfill them can have ramifications that span generations. So choosing the right professional trustee for managing wealth is crucial to protecting the wealth you have worked hard to build.
Related Article: Who Should You Name as a Trustee? Why to Hire a Fiduciary!
Why to Choose a Professional Trustee for Wealth Management
Hiring a professional trustee for wealth management is not a decision you can make lightly. Choosing the wrong person could not only tarnish your legacy, but also jeopardize the present and future financial security of your loved ones. Hiring a professional is crucial because trusts with considerable wealth are often more complex. Here’s why.
Related Article: Maximizing Wealth Transfer: The Power of Trusts and Fiduciary Services
Fiduciary Duty
One reason to work with a professional trustee for wealth management is the fiduciary duty. This fiduciary duty refers to the legal obligation of trustees to act in the best interests of the trust and beneficiaries.
The average person will be unaware of what this entails, but these duties are extensive, and failing to uphold them exposes the trustee, trust, and beneficiaries to substantial risk. Especially when it comes to complex family dynamics, this can be invaluable.
A professional trustee will understand that they have a legal obligation to avoid conflicts of interest and remain impartial. They will also have the experience to navigate complex dynamics and disputes without taking the trust off course.
Especially with multiple beneficiaries, balancing the desires and needs of the current generation and even those of future generations to come is challenging. They must also be communicative with beneficiaries while maintaining strict confidentiality.
On that note, someone who is not a professional may be more tempted to abuse their position and either steal from the trust, use it for their gain, or cater to one beneficiary over the others. A professional and objective third party will be less susceptible to this.
“Another way to think about this is that a professional trustee will be less likely to be swayed by family dynamics. They will be immune to the health issues, financial difficulties, or inter-family conflicts that can prevent someone who is not an expert from fulfilling their role, which can have consequences that ripple across generations.”
– Marcia L. Campbell, CPA & Professional Trustee
Trustees must also perform their duties with skill, care, and prudence, regardless of whether or not they have experience in the field. For example, if they have to sell real estate, they must sell it at market value and have a professional appraisal.
A trustee that specializes in managing wealth will also understand when to delegate and likely have the network and resources to streamline the process.
Investing the Assets
Investing trust assets is a major component of a trustee’s responsibilities, especially when a trust has a significant amount of wealth. Trustees must invest assets they are keeping in the trust based on specific criteria, such as the trust’s duration and its goal.
Because of this requirement and the complex assets that may exist in the trust, hiring a trustee for wealth management who has a deep knowledge of financial markets, investment strategies, and asset classes, for example, is imperative.
This requires the expertise of a professional. For example, if a trust is intended to provide support to a specific individual, the investment strategy may be more conservative and emphasize access to cash to meet their needs while minimizing risk.
On the other hand, a trust with a duration of multiple generations that is not intended to make distributions for many years may require a strategy that emphasizes long-term growth with a slightly higher risk in the short term.
A trustee may also need knowledge of specialized assets, like commercial real estate, an interest in a business, or tangible personal property. Regardless, understanding these goals and tailoring an investment strategy requires considerable experience and expertise.
Distributing the Assets
One of the most important and, in some cases, challenging parts of serving as a trustee is understanding how and when to distribute assets to beneficiaries.
This is another responsibility that requires a professional trustee for wealth management. Discretionary distribution often entails difficult, delicate decisions as they must take the trust’s mission, terms, assets, income, and beneficiary’s prior requests into consideration.
They must have a concrete understanding of how this distribution will impact the trust’s overall value, asset allocation, taxes, and more. Another layer of complexity is the personal aspect of making distributions.
Imagine a situation where someone established a trust to protect the financial future of someone they know is prone to reckless spending, whether it’s due to substance abuse, a gambling problem, or poor control over their financial decisions.
Making distributions that the beneficiary could squander might undermine their future and the intention of the trust. In some cases, depending on the trust terms, the trustee might decide making payments directly to creditors for a mortgage or taxes could be better.
If the trustee is a relative or close friend of the family, withholding money could damage a valued relationship. This is why an objective third party is crucial.
Records, Accounting, and Compliance
Effective trust management requires careful record keeping. These records should document distributions, establish an appropriate investment strategy, and demonstrate that they are managing the trust per trust terms and in the best interests of beneficiaries.
As a result, a trustee must understand how to do clear, accurate, and comprehensive trust accounting while maintaining compliance with state and federal tax laws and other regulations that govern trusts.
Protect Your Legacy and Family by Working with a Professional Trustee for Wealth Management.
Hiring a professional is crucial to protect your wealth, get the most out of your trust, and ensure the person you entrust with this responsibility operates with integrity. Only a professional trustee for wealth management will have specialized experience in managing and administering trusts, handling legal issues, navigating taxes and investments, and complex accounting, recordkeeping, and communications.
Working with a professional is crucial, especially when there is a lot of wealth on the line.
