A look at the qualities of a good trustee

There are several factors to consider when selecting a trustee. Ryan Gager notes that someone should have the time, willingness, and ability to serve as a trustee—and choosing a good trustee can be hard. Our speakers talk about the qualities of a good trustee and the potential advantages of having a corporate trustee.

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Gary Gamma: I know, actually, there’s a question here from James in North Carolina, Ryan, about how to select a good trustee.

Ryan Gager: Yeah, so I think for me, and I don’t know how you guys feel, those results don’t shock me. I don’t think a trust is right for everybody at every stage in their life, and I’m sure we have a wide range I our audience.

I think for a lot of clients when they start to really drill down into doing some wealth and estate planning, for a lot of people, they will end up with a trust at some point. But many of those trusts aren’t during lifetime. There may be a trust built into their will, whether a client knows it or not. The attorney may have one in there, but it may not be time right now.

Is that consistent with what you guys have seen and—?

Alisa Shin: Yeah, I think that’s right, and I think also that for our Vanguard clients who are using trusts, I mean a lot of Vanguard clients are really true and tried Vanguard clients, to the sense that they have taught themselves or learned from Vanguard’s thought leadership in terms of how to handle investments; and they’re transitioning that knowledge over to their kids. So the fact that there’s so many who’ve used family members as trustees isn’t so surprising to me.

Erin Zavislak: I do find that in the beginning stages of a client’s plan, it’s, you know, kind of easy to figure I’m going to use a family member or I’m going to use my accountant because you know those people. But if your trust is going to last for longer, that decision on who’s going to be trustee becomes harder.

Ryan Gager: Yeah, I agree, and maybe that’s a good place for me to sort of jump in and talk about how to select a trustee—

Gary Gamma: Yeah.

Ryan Gager: —because it is a very difficult decision sometimes. And, in fact, many clients may have had the experience where they’ve gone and met with their attorney and you kind of blow through all the decisions that need to be made, and then those tough questions start getting asked. Who’s going to be your executor? Who’s going to be your trustee? Who’s going to be your agent? Those are very personal and challenging decisions for clients a lot of times.

I think it’s helpful to think about the types of qualities that you want in your trustee. I would start with a time, willingness, and ability analysis. It’s actually very similar to the way we think about when clients need investment advice, right, if they’re going to come to Vanguard for our Personal Advisor Services? Do they have the time, willingness, and ability to manage their own assets? If they don’t, they might need some advice. And I think the same thing is true for trustees as well.

If you’re looking at a potential trustee, and they don’t have the time to devote to this very important job, it’s probably not a good choice. If they don’t have the willingness. If you’re naming somebody as a trustee under a document, you should probably talk to that person first. You don’t want to surprise someone with being named as the trustee.

And then, finally, they have to have the ability. It’s not always easy. There’s a lot of duties that have to be discharged. There’s state law to think about, taxes that have to be filed. Many people might sympathize with the story of a husband and wife who go into their estate planner, and they’re ready to put their documents together, and they had talked ahead of time, “Oh, who do you think we should name as our executor and trustee?” And they say, “Oh, it’s our favorite child. That’s the one to really choose.” And then they talk to the attorney, and the attorney lists the dozens of things that this poor person will have to do; and they say, “Maybe our least favorite child should have these responsibilities.”

My point is it’s a tough job. It really is. And so if you don’t have someone with that time, willingness, or ability, it’s probably not the right choice.

Gary Gamma: Okay.

Ryan Gager: The other things I look for are in your trust, do you need somebody who’s neutral? Right, and this is what often leads you down the road of having a corporate trustee. If decisions have to be made about making distributions from a trust among maybe siblings- Right, I have a brother, and we get along very, very well; but I don’t know that it would be appropriate for me to make decisions about distributions going to him. And I don’t know if it would be appropriate for him to make decisions about distributions that might come to me. We might get along better if we had a neutral person to do that, and so one thing I look for is do we need neutrality.

And then, finally, it’s this question of availability and permanence. Erin referenced it earlier. Some trusts are meant to go on for a long period of time, maybe beyond any reasonable person’s lifetime. It’s very hard to see into the future and be able to predict who’s going to live until when.

In those circumstances, you might want a corporate trustee who you can trust who’s going to be around, who’s going to be around for dozens and dozens of years. So those are the types of categories I would look at in helping to pick out a trustee. I don’t know if you guys have found that to be a helpful way to look at it.

Alisa Shin: No, I think that’s absolutely right. Those are all good factors. I usually use a pretty simple role with our clients when we talk to them about selecting trustees. You know, don’t feel like you need to pick a trustee who knows how to do everything, who knows to understand the investment, who understands all the trust stuff, and how to read a document. But what they do need to be is they need to be smart enough to know when to go get help and where to go to get that help.

And please don’t think that you always can only pick just one trustee. A lot of times for our clients what works the best for them is having a collaboration with a corporate trustee like Vanguard and with a family member because often the corporate trustee can provide that neutrality that Ryan was referring to; but the family trustee, the co-trustee with Vanguard can help provide that personal touch. They’re the ones who know the family better. They knew you better, arguably, and they understand what you’re trying to do. And they can help Vanguard make decisions on your behalf.

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