Who can you trust? What can you trust? Can you trust your assets to a Trust? People hear the word "trust" and think lots of things. Trust me. Trust fund. Trust fund baby. Bank and trust. Trust account.
I have previously written on the perils of the probate avoidance "living trust" and how people get scammed into making one.
So I will not belabor that. What I will focus on is a growing problem of choosing your trustee.
Scenario 1.
You are your own Trustee.
Ok, you out smarted the system. Who needs to trust anyone except themselves? Well, the government has figured that one out. They look at someone who created a trust, for their own benefit, who named themself as a trustee...as a nothing. You just put your wallet from your back pocket to the front, as you still have control. Your trust is pointless, and you probably were convinced you needed one by someone who didn't know what they were talking about.
Also, as an individual taxpayer, you have to earn $400k in 2013 dollars to hit the top, 39.6% tax rate. Got your business in a trust? You get there at $11,950. That is a huge, huge tax hit, and that applies to all of these scenarios.
Scenario 2.
You pick a close family member as Trustee.
Ok, a little better. Don't pick a beneficiary, or their share loses any creditor protection like in scenario 1. Further, if you picked your wife/brother/son, what happens if they get mad at you? What if they get too busy? What if, they decide to invest all your assets in a great stock tip they heard, only to have it turn out to be a bust? Do you have any recourse? Are you going to sue your wife/son/brother? I didn't think so. Choose wisely here, and make sure they are not a beneficiary of the trust.
Scenario 3.
You pick a bank or institutional Trustee.
A pro trustee, banks are a safe bet. They are insured, know what they are doing, and have access to investment leverage and knowledge that most do not. However, they do not know your family (likely) and are not emotionally invested, so you might not be able to call them at midnight or on the weekend for an emergency. Also, they cost.
Conclusion:
Picking a trustee, like picking an executor for your will, is a big decision. If you are in over your head and know a family member or friend would be too, then trust a professional. If it doesn't make financial sense to pay someone, then pick someone whom you trust, who has the time, and will do a good job. Finally, unless you have talked to a professional about the limited instances you should be trustee over your own trust, don't. Just don't.
Can you have both a family member or friend and a bank or institution act as co-trustees? Or does that cause more problems than it solves?
Also, what are your thoughts on naming your trusted lawyer or accountant as your trustee rather than an institution?
Anonymous:
You can, but the problems with multiple trustees or "Trustee by committee" arise in getting them to agree, having different goals, and timeliness of action. On the flip side, having multiple trustees can help in the event of a falling out with your trustee. It just depends on your asset mix, your goals, and the type of beneficiaries you have on what trustee type will be the best for you.
Again, institutions cost money, but they are pro's and are usually insured. If your friend the accountant invests all your trust in American Airlines or Ford stock and it goes through bankruptcy, then there might not be any real recourse against them, and your money is gone. So, choose wisely.
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