Carefully consider the risks of choosing a family member as a personal trustee. While it may seem that they are the natural choice, it can put your estate at significant risk.
- Family trustees can put your estate at risk due to the lack of professional experience that institutional trustees have. A trustee checklist can help understand these risks.
- Even the most trusted family member is influenced by bias when guiding family trusts.
- While treated as a fiduciary under court law, your family member trustee may not understand this role, which may put them at unnecessary, legal risk.
The Natural Choice
When it comes time to select a trustee who will oversee your financial affairs after your death, it's only natural to consider family members for the role of family trustee and entrust them with your financial affairs after your passing. Blood ties make them good candidates for handling your estate, ensuring that everything will be done according to your wishes without any oversight beyond the trust you've placed in them.
If a family member isn't available, or if you don't feel sanguine about entrusting any of them with such a vital role, you might want to select a close friend as a personal trustee. After all, they've known you for years; they know your opinions and beliefs and have stuck with you through thick and thin, right?
You might want to think twice.
A grandmother in Indiana was appointed a family trustee of a college fund established for her grandson by a wealthy family friend. In the eight years between the time the trust was set up and the time the boy was ready for college, it appears that granny looted the trust of more than $100,000, possibly for gambling. She's on the run and was last believed to be somewhere in Louisiana.
A trusted family member, a grandmother no less, left in charge of a grandson's trust. Now the boy has no money for college, and his entire future is derailed.
It's tough to think about a family trustee or personal trustee failing to follow your wishes after your death, but the one way to make sure that never happens is to select a trustee who is licensed by a state banking authority, with fiduciary responsibility and experience. An impartial third-party trustee with oversight by government authorities will guarantee that your wishes are followed and that those who are supposed to receive distributions get them as intended.
A family trustee or personal trustee may seem like the obvious choice, but when you think of the possible disasters that can come from failing to ensure proper oversight and ethical practices, a third-party trustee just makes sound financial sense.