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The COVID-19 pandemic has put a spotlight on legacy planning by highlighting the need to get estate plans in order — a task most of us have admittedly neglected. Factor in the prospect of a lower estate tax exemption in the near future and an aging, affluent baby boomer population and it seems that 2021 is the perfect time to focus on estate planning, including creating, updating and finalizing formal estate planning documents.
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Even before the pandemic hit, many people anticipated needing a trust knowing that the current elevated estate credit is set to expire in 2025. The pandemic further increased the urgency by forcing people to think pragmatically about whether their financial and legal affairs are in order in the event of an illness or death.
Trusts help provide peace of mind for loved ones and allow people to control where their assets go after their death — without the hassles and cost of probate. For wealthier individuals, trusts serve as means to protect assets, safeguard against spendthrift tendencies, maintain privacy, and reduce estate and gift taxes.
One key component of establishing a trust is in determining who will serve as the personal trustee. The duties of a personal trustee are many and can often feel burdensome if not managed properly. There are both the technical and administrative aspects to consider, as well as the impact of stepping into such a role could have on family harmony.
Say, for example, that one of your siblings is named trustee of your parents’ estate and you have never really gotten along with that sibling. What sort of dynamics does that create in the family? Some of the responsibilities of a trustee are so daunting that we’ve had individuals currently acting as a trustee for a family member or friend ask if there were other options.
It’s critical that anyone named as a personal trustee understands and agrees to the many responsibilities of the role. In fact, the more a personal trustee is able to step into their role with eyes wide open, the more successful they will likely be in carrying out their loved one’s wishes.
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From administrative duties to investment oversight: the many responsibilities of a personal trustee
It’s more than an honor to serve as a trustee, it’s a serious commitment that comes with serious fiduciary responsibilities such as investing, paying bills, tax reporting, fulfilling obligations to current and future beneficiaries, and following strict compliance requirements. For anyone lacking experience in these areas, the requirements of a trustee can be overwhelming.
The appointment also comes with some risk, particularly for trustees of larger estates, who need to balance the needs of current and future beneficiaries, which can leave them exposed to legal action by those beneficiaries.
To ease the burden and legal exposure faced by a personal trustee, appointing a professional trustee is worth considering, especially for individuals with larger or complex estates. A professional trustee will assume responsibility for a host of time-consuming administrative and record keeping tasks along with taking-on the fiduciary and legal obligations. The trustee will see that the assets in the trust are managed and administered properly including the necessary reporting requirements.
Another option would be to appoint a professional trustee to act as a co-trustee. Bringing in a professional trustee to serve alongside your client offers many benefits, including shifting most of the trustee’s legal liability away from the personal trustee while keeping them involved in the big decisions.
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If a professional trustee isn’t a viable option for your family and you’d prefer to hand that role to a trusted loved one, it’s critical to ensure that person is fully aware of your wishes as well as the duties and risks the appointment entails. You don’t want to put them in the challenging position of having to grasp the role and all of its complexities on the fly all while trying navigate family dynamics and address the needs, wants and whims of the various beneficiaries.
Directing important decisions
Once you make the decision to fund a trust as part of your estate planning, you must then select who can best carry out your plans. “Who do I choose as my trustee or co-trustee?” becomes a critical planning question.
Estate planning may not be top of mind for most people since planning for after your death is a difficult conversation to have with yourself, let alone your family and friends. However, it is crucial that if you want reassurance that your assets will go to the people you love, then you have to be prepared and the first step in legacy planning will be choosing your trustee.
Angie O’Leary is head of wealth planning for RBC Wealth Management-U.S.
RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC.
Trust services are provided by third parties. Neither RBC Wealth Management nor its Financial Advisors are able to serve as trustee. RBC Wealth Management does not provide tax or legal advice.
