A trust is one of the most versatile estate planning tools available because it allows you to protect assets, provide for loved ones, establish long-term financial management, and determine how and when property will be distributed. Although trusts were once associated primarily with high-net-worth families, they have become a cornerstone of estate planning for individuals and families across every income level. Whether your goal is to avoid probate, provide for a surviving spouse, protect minor children, or preserve family wealth for future generations, a trust can provide significant advantages. Creating a trust is only the first step, however, because the long-term success of your trust depends largely on selecting the right Trustee. Given that the Trustee occupies a fiduciary position, selecting the wrong person can create unnecessary delays, family conflict, financial losses, and even litigation. Although many people instinctively choose a spouse, adult child, sibling, or close friend because they are familiar and trustworthy, appointing a professional Trustee may better protect both your assets and your long-term interests. With that in mind, the attorneys at Wilcox Attorneys, PA discuss whether appointing a professional Trustee to administer your Arkansas trust is right for your estate plan.
Understanding the Role of a Trustee
A trust creates a fiduciary relationship in which one party, known as the Grantor, transfers property to a Trustee to hold and administer for the benefit of one or more beneficiaries. Unlike an Executor, whose responsibilities generally conclude after an estate has been administered, a Trustee’s duties may continue for many years or even several generations.
Arkansas has adopted the Arkansas Trust Code, which establishes numerous duties and responsibilities that govern Trustees administering trusts within the state. Among the most important obligations are the duties of loyalty, prudence, impartiality, and good faith. A Trustee must always administer the trust according to its terms while acting solely in the interests of the beneficiaries. Because the Trustee serves in a fiduciary capacity, mistakes can expose both the trust and the Trustee to substantial financial liability. Common Trustee duties and responsibilities include:
- Identifying and protecting trust assets.
- Investing trust property prudently.
- Maintaining detailed financial records.
- Preparing required accountings.
- Filing federal and state tax returns.
- Paying trust expenses and valid creditor claims.
- Communicating with beneficiaries.
- Making discretionary distribution decisions.
- Preserving real estate and other valuable assets.
- Ensuring compliance with Arkansas trust laws.
Why Choose a Professional Trustee?
Serving as Trustee is far more demanding than many people realize, requiring an understanding of legal compliance, financial oversight, recordkeeping, tax knowledge, and the ability to remain objective when difficult decisions arise. Although family members often understand your personal wishes better than anyone else, choosing a professional Trustee, such as an attorney, bank trust department, or corporate fiduciary, can often be a better option for several reasons, such as:
- Professional Knowledge and Experience: Administering a trust involves considerably more than distributing assets after someone dies. Trustees must understand fiduciary law, investment principles, tax reporting requirements, accounting procedures, and the specific instructions contained within the trust agreement. Professional Trustees administer trusts as part of their regular practice which means that they understand how to interpret trust language, comply with applicable laws, maintain accurate records, and coordinate with accountants, financial advisors, and attorneys when specialized guidance becomes necessary.
- Objective and Impartial Decision-Making: One of the greatest challenges facing a family member serving as Trustee is maintaining complete impartiality. Even the most conscientious family member may find it difficult to separate personal relationships from fiduciary responsibilities whereas a professional Trustee approaches each decision objectively. Rather than allowing personal emotions or family dynamics to influence administration, the Trustee follows the language of the trust and applies consistent fiduciary standards to every beneficiary.
- Reducing the Risk of Costly Mistakes: Trustees may be held personally liable for financial losses resulting from breaches of fiduciary duty or negligent administration that may be the result of things such as improper investment decisions, failure to diversify investments, or improper distributions. Professional Trustees have established administrative procedures designed to minimize these risks which can help protect the Trustee and preserve the value of the trust for the beneficiaries.
- Helping Prevent Family Conflict: One of the most common reasons Grantors establish a trust is to reduce the likelihood of disagreements among family members after they are gone. Ironically, however, appointing one child, sibling, or other relative as Trustee can sometimes become the source of the very conflict the trust was intended to avoid because it places one family member in a position of authority over others. Even when the Trustee acts appropriately, disappointed beneficiaries may perceive favoritism or bias simply because of existing family relationships. A professional Trustee, however, enters the administration process without personal loyalties or emotional attachments. This neutrality often reduces suspicion among beneficiaries and promotes greater confidence that the trust is being administered fairly.
- Providing Long-Term Stability: Many trusts continue well beyond the initial administration period following the Grantor’s death. Although a family member may initially be capable of serving as Trustee, that Trustee may become ill, relocate, retire, lose interest in serving, or pass away before the trust terminates. Each transition to a successor Trustee requires additional administrative work and can interrupt the continuity of trust management. Professional Trustees, on the other hand, offer institutional continuity. If one trust officer retires or changes positions, another qualified professional assumes responsibility while preserving the trust’s uninterrupted administration.
Are There Any Disadvantages to Choosing a Professional Trustee?
Although professional Trustees provide numerous benefits, they are not the right choice in every situation. Every estate plan should reflect your unique circumstances, your financial goals, and the complexity of your trust.
One factor many Grantors consider to be a disadvantage of appointing a professional Trustee is cost. Professional Trustees charge fees for their services, and those fees may be based on a percentage of trust assets, hourly billing, or another compensation structure. For relatively modest trusts with straightforward administration, those fees may represent a meaningful expense.
Another negative consideration for Grantors when appointing a professional Trustee instead of a friend or family member is the lack of familiarity with your family. A trusted relative or lifelong friend often understands your family’s personalities, traditions, and history in ways that an outside professional cannot. That personal knowledge may prove valuable when making discretionary decisions regarding education, healthcare, or other beneficiary needs.
Even so, many Grantors conclude that professional experience, objectivity, and consistency outweigh the benefits of appointing a family member, particularly when the trust involves significant assets, multiple beneficiaries, or potentially contentious family relationships. In some situations, a co-Trustee arrangement that combines a trusted family member with a professional Trustee provides an effective balance between personal insight and professional administration.
Do You Have Questions about Appointing a Professional Trustee for Your Arkansas Trust?
For additional information, please sign up for one of our FREE estate planning webinars. If you have questions or concerns about appointing a professional Trustee to administer your Arkansas trust, contact the experienced Washington County, Fayetteville, Springdale, Rogers, Bentonville, and Northwest Arkansas estate planning attorneys at Wilcox Attorneys, PA by calling 479-443-0062 to schedule your appointment today.
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