How to Properly Select a Trustee or Personal Representative
Choosing a Personal Representative or Trustee
With all the decisions you need to make when putting together an estate plan, choosing a personal representative or a trustee is one vital piece of the planning process. The person or entity you select can help carry out your wishes and help to keep your family’s life protected after your passing. However, making the wrong choice can harm even the most carefully designed estate plan. This article provides an overview of traits of an effective personal representative and trustee and the distinctive benefits of selecting either an individual or a corporate entity for these roles.
The purpose of a personal representative is to maintain and administer a decedent’s estate administration and to distribute the estate to the beneficiaries pursuant to a decedent’s Will or under Minnesota’s intestacy statutes. When a trust is included within the estate plan, it may be to provide for a beneficiary who lacks either the desire or the ability to manage money or finances. The trustee selected is often called upon to decide whether to distribute trust assets for any particular purpose. Many trusts allow the trustee to distribute the funds for a beneficiary’s health, education, or support. The trustee must exercise effective independent judgement in applying these standards while communicating the decisions effectively to the beneficiaries. A personal representative and/or trustee must have good judgment, excellent communication skills, and the ability to be fair and just to all beneficiaries of an estate or trust. A trustee is also responsible for investing trust assets, while a personal representative must preserve estate assets for distribution to the beneficiaries. When determining the proper investments, a trustee must look at both the needs of the current income beneficiaries and the remainder beneficiaries. Thus, a trustee should have investment expertise, integrity, financial stability, knowledge of the donor’s goals and the ability to balance competing interests.
Selecting an Individual Personal Representative or Trustee
People often choose a family member or a friend to be the personal representative or trustee because of that person’s relationship to the family or to the beneficiaries. This family member or friend may have personal knowledge of the family’s situation and is often familiar with the goals and objectives of an estate plan and trust. An individual trustee may also have first-hand knowledge of certain types of assets held in the trust, such as a family-owned business or a farm.
Thus, an individual trustee’s input into the operations of such businesses can be important to the future success of the entity. Of course, there are downsides to naming an individual personal representative or trustee. These chosen individuals are not professionals and often are not familiar with the duties of holding a “fiduciary” title. For instance, individual trustees may have difficulty understanding the difference between managing and investing their own funds and managing and investing trust funds collectively. Also, an individual personal representative and trustee may overlook the record-keeping function and fail to maintain adequate accounting records and tax return filings.
Selecting a Corporate or Professional Personal Representative or Trustee
Certain banks, trust companies, and/or law firms may serve as a personal representative or trustee. These professional/corporate entities are well-positioned to handle the estate and trust administration functions, such as accounting services, record keeping, investment and management of assets and tax return preparation. Corporate trustees are subject to federal and state regulation and are expected to monitor the estate and trust assets and investments closely. Additionally, a corporate trustee is “permanent”and will not predecease the beneficiaries of a trust. Kennedy Law offers these professional/ corporate services for estates and for trusts.
Questions to Consider in Choosing a Personal Representative or Trustee
Overall, your choice of personal representative and trustee depends hugely upon your individual goals and the needs of your beneficiaries. Here are several questions to consider when putting together your estate plan:
How will your selection relate to your beneficiaries?
What level of expertise is needed in investment and management of assets held in the estate or trust?
What are my long-term goals?