Why Would I Need a Professional Fiduciary? The first question I am commonly asked by my clients is, "Why would I need a professional trustee... or guardian... or executor...?" Another question I frequently get asked is, "Why would I want to pay you to do this for me?" There so many reasons why someone would want an independent third-party managing their affairs during their lifetime and/or beyond. Some people do not have children or close relatives and friends whom they would trust to act on their behalf. I have worked with some people who do not want to burden their family and friends with the responsibility. Others simply do not trust those individuals whom they would appoint as their trustee, guardian or executor.
Selecting Your Fiduciary. The first thing you should do if you are in the process of making such important decisions is to contact an estate planning attorney to discuss the various issues involved. Whether you wanting to finalize your will, execute powers of attorney or health care (advance) directives, or create a trust, an attorney should guide you through this process. Many people hesitate to contact an attorney because they are expensive and are an additional and unwanted cost - but the truth is if you do not get the correct advice and go the cheaper route, you may very well end up paying more to fix the problems created by going that route. If your attorney recommends that you seek a professional third-party fiduciary to act on your behalf, you should take the time to thoroughly research which person or entity you would want to appoint.
The Pro's and Con's of Corporate Fiduciaries. Corporate fiduciaries, such as banks and trust companies, are usually insured, and are closely monitored by federal and/or state regulators to ensure that adequate controls are in place for their accounts. However, banks and trust companies are notorious for high fees. Their fees are generally referred to as "market fees" and charge a monthly, quarterly or annual fee based upon the value of the assets they are managing in a trust or estate. Some companies also charge hourly fees or flat fees for certain activities or situations. It is very important to closely review the bank or trust company's fee schedule so that you understand how and what fees will be charged to your account. The other issue that comes up often with banks and trust companies acting as professional fiduciaries is the value of the account. The fact of the matter is that your account may not be large enough for the bank or trust company to be interested in managing. Larger banks and trust companies typically set a minimum of $1-$2 million for an account, while smaller banks and trust companies will probably consider managing accounts that are at least $250,000. I have heard of one or two that may take accounts in the $100,000 range, but when they get that "small" (remember, this is the corporate fiduciary's language, not the opinion of a layperson) it oftentimes is not cost effective for the bank or trust company to manage the accounts due to their fee structure. Another complaint I have heard about large banks and other financial institutions is that folks feel they do not receive the personal service they should be entitled to. An example would have having to call someone in another state or across the country for assistance, rather than someone local; or even having to talk to a computer on the phone rather than a live person. Smaller trust companies and community banks may be able to provide more personal service to customers than the larger banks and financial institutions; however, if you live in a large metropolitan area, this may not be an issue.
The Pro's and Con's of Independent Trustees. There are also professional trustees, guardians and executors who work independently. These fiduciaries are usually willing to take on the accounts valued less than $250,000, and their fees are generally lower than corporate fiduciaries; but, that being said, they are also not required to follow the rules that govern banks and trust companies (i.e. audits by federal and/or state agencies, policies and procedures regarding dual custody and security for estate and trust assets, etc.). It is important if you consider selecting an independent fiduciary to manage your trust or estate to make sure this individual has appropriate liability insurance, bonding, and/or controls with respect to his/her business practices. This person should be able to provide you with a copy of their insurance coverage rider, have the ability to bond any liquid assets in your trust or estate, have appropriate policies and procedures in place for the management of your assets, and most importantly, follow those policies and procedures. Some controls for independent fiduciaries is to require an annual accounting be filed with the Court, and to require that statements be mailed to interested parties annually, quarterly or sometimes, even monthly. Independent fiduciaries can also provide you with the personal service that you might want or need, because they usually accept accounts in areas close to where they reside and/or operate their business. They may also be willing to act as attorney-in-fact for health care decisions; whereas, corporate fiduciaries are generally not willing to take on this role for individuals.
The bottom line is that there are many reasons why you would want to select a professional fiduciary, and there are many issues to consider when deciding which type of professional fiduciary is the right one for you. The one thing that I have noticed that is important to all of the individuals I have worked with is that they all want to have happen what they have directed, and if you want things to work out the way you intend them to, it is important to start out on the right foot. Meeting with a competent estate planning attorney is the first step to accomplishing your goals.
