When creating a trust, one of the most important decisions is selecting the right trustee. A trustee is responsible for managing trust assets, carrying out the terms of the trust, making distributions to beneficiaries, maintaining records and acting in the best interests of the trust and its beneficiaries. You can choose an individual or an institution as a trustee. The best choice depends on your circumstances, but either way, your trustee can shape how successfully your trust achieves its intended purpose.
Why Many Families Prefer an Individual Trustee
For many families, appointing a trusted individual trustee is the natural choice. A family member, close friend, or trusted advisor often brings qualities that no institution can fully replicate. While corporate trustees can be valuable in certain circumstances, an individual trustee is frequently better positioned to understand the people, relationships and values behind the trust.
Among the benefits of naming an individual are:
- Personal Knowledge of the Family. An individual trustee is likely to understand the beneficiaries’ personalities and circumstances as well as the grantor’s wishes and the family dynamics. As a result, when a beneficiary requests a distribution for education, healthcare, housing or another important need, a trustee who knows the family may be able to evaluate the request with context that a corporate institution simply does not possess.
- Greater Flexibility, Accessibility and Trust. For many beneficiaries, working with a trustee they know and trust feels more comfortable than dealing with a bank or trust company. In addition, an individual trustee is often easier to reach and more responsive to questions and concerns. They can make decisions without multiple layers of institutional review. Since an individual would know the family, they are also better positioned to address unique family circumstances as they arise.
- Familiarity with the Grantor’s Intent. Trust documents cannot anticipate every circumstance that may arise over time. An individual who knew the grantor personally may be better able to interpret and implement the broader purpose behind the trust. They would have firsthand knowledge of the grantor’s values, intentions and long-term goals and could make judgment calls consistent with the spirit, not merely the language, of the trust document.
- Cost Efficiency. Depending on the circumstances, an individual trustee may charge lower fees than a corporate trustee. Often, they are willing to serve for reasonable compensation or even waive compensation entirely. For smaller trusts, reducing administrative costs can help preserve assets for beneficiaries.
Important Considerations Before Naming an Individual Trustee
While an individual trustee is often an excellent choice, the position is a significant commitment. Serving as trustee involves more than simply distributing money. Tax filings, investment oversight, record-keeping, and fiduciary responsibilities can become substantial, particularly for larger or long-term trusts. Accordingly, a prospective individual trustee should have a mix of characteristics and skills, including being trustworthy, dependable, financially responsible, organized, detail-oriented and willing to devote the necessary time and effort to fulfilling their duties. Since they also have to manage beneficiary requests, they must also be able to remain objective when making decisions affecting family members.
When a Corporate Trustee May Be the Better Choice
Although many families prefer an individual trustee, certain situations may warrant the appointment of a corporate trustee. A corporate trustee may be preferable when:
- The trust contains substantial assets requiring professional management.
- The trust owns business interests, commercial real estate or other complex investments.
- The trust is expected to continue for multiple generations.
- Family conflict is likely or already exists.
- The trustee will be required to make difficult discretionary decisions.
- Extensive accounting, reporting and tax compliance are anticipated.
- The grantor desires a neutral third party.
- Long-term continuity is a primary concern.
In these situations, a corporate trustee’s professional resources, experience, and institutional stability may provide significant benefits.
Utilizing a Hybrid Approach
For some families, the best solution is not an either-or decision. A trust may appoint both an individual trustee and a corporate trustee as co-trustees. This arrangement can combine the individual trustee’s personal knowledge of the family and grantor’s wishes with the expertise, independent oversight and long-term continuity of a corporate trustee. When structured properly, a co-trustee arrangement can balance flexibility and objectivity, offering the advantages of both approaches while minimizing their respective drawbacks.
Choosing the Right Trustee
Whether you’re choosing an individual trustee, a corporate trustee, or a combination of both, ultimately, the right trustee is the one equipped to carry out your wishes, protect trust assets, and act in the best interests of your beneficiaries for years to come.
If you have questions about selecting a trustee or understanding trustee responsibilities under New York law, our attorneys can help evaluate your options and minimize future risk. Contact us for a consultation.