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What to consider in selecting a trustee, P.1

Trusts are a common instrument used in estate planning, and are very versatile. Trusts can be used for businesses, protecting children, and tax planning benefits, but regardless of the reason a trust is set up for, a trustee will have to be selected to be in charge of the trust.

Selecting a trustee is a big decision. One can select either an individual or a company to act as trustee. Either option has advantages and disadvantages. Here we'll look at several things to keep in mind when selecting a trustee.

One thing to consider in selecting a trustee is the size and complexity of the trust assets. Corporate trustees usually cost more, and get paid based on the percentage of assets they have to manage. Sometimes they charge a minimum fee. For modest estate, those less than $50,000, it may be best to go with an individual trustee because of the high fees of a corporate trustee.

That said, even more sizeable estates don't necessarily require a corporate trustee. Trusts that are complex, however, may be better operated by a corporate trustee, since the corporation is more likely to have the resources to handle administration of the trust.

Typically, people like to select family members or close friends to administer their trusts. This can work when the trust is fairly straightforward. The difficulty can come in when the trust is not so straightforward and the family member selected does not have the knowledge or skill to handle the task, whether because of the workload, administrative duties, investment decisions, tax filings, distribution of assets to beneficiaries, and other tasks. Of course, a trustee can hire professional to help in these matters, but a certain amount of knowledge is still required to get the right people to help out.

In our next post, we'll continue our discussion of trustee selection.

Source: Wall Street Journal, "A Matter of Trust," Jeanine Skwronski, September 10, 2012

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