Whom to Trust?

People seeking trustees have three basic choices: an individual, such as a relative or family friend; a professional, such as an attorney, certified public accountant or fiduciary; or an institution, such as a bank or trust company.

Each option has its benefits as well as drawbacks. The right choice depends on each family’s financial situation, temperament and relationships, estate planners say.

Attorney Denis Clifford, coauthor of “Plan Your Estate: Absolutely Everything You Need to Know to Protect Your Loved Ones,” (Nolo Press, $24.95), argues the best choice for most people is a financially savvy friend or relative who knows the family and who can be counted on to carry out the trust creator’s wishes. Individual trustees typically serve for free, although they might need to hire professionals for investment, accounting and legal help, Clifford said.

Finding someone who is both competent and willing can be difficult, however, if the trust is complicated or the family involved particularly contentious.

David P. Beringer, a certified public accountant in Pasadena, said he has seen enormous family battles, complete with lawsuits and death threats, break out over disagreements with trustees. Since trustees can be held legally liable for bad decisions, the assignment that some trustees viewed as an honor can quickly turn into a financial nightmare.

Such conflicts are a perennial problem for marital trusts known as A-B or bypass trusts, which are designed to avoid estate taxes. These trusts put the deceased spouse’s assets aside for future beneficiaries, typically children, while allowing the surviving spouse to live off the income. The surviving spouse also is allowed to dip into the principal for purposes of health, education or maintenance of their standard of living.

Thus the children and the spouse have a built-in conflict of interest. The spouse typically wants the trust’s investment to emphasize income, while the future beneficiaries hope for maximum growth.

Such land mines prompt many families to call in a professional to serve as trustee. An attorney, accountant, financial planner or fiduciary can provide objectivity and some insulation from family quarrels, said Charles P. Rettig, a Beverly Hills attorney who is currently serving as trustee on two trusts. Many people rely on the professionals they use for other areas of their financial life; the Professional Fiduciary Assn. of California at (916) 927-8836 also offers a list of experienced members who serve as trustees.

Using the same person as an advisor and a trustee can have its own conflicts, however, if the advisor suggests investments or strategies for his or her own enrichment.

Beneficiaries may wonder, “Was the advice rendered for the benefit of the beneficiaries or for the benefit of the advisor, to obtain fees?” Rettig said.

In addition, individual or professional trustees are aging just as rapidly as the trust creator. Potential trustees who are competent now might not be by the time they’re needed--when the creator of the trust dies. Someone with a bypass trust or a generation-skipping trust, which protects money for the benefit of grandchildren, in particular might need a trustee for decades.

Jeffrey L. Condon, a Santa Monica attorney and coauthor of “Beyond the Grave: The Right Way and the Wrong Way of Leaving Money to Your Children (and Others)” ($14.95, HarperBusiness), argues that corporate trustees should be the preferred choice for most well-off families.

Trust companies and banks offer continuity, and they keep close tabs on how trust officers handle money, Condon said. These institutions, which usually require trusts of at least $250,000 to $500,000, typically charge 1% to 2% of assets to manage a trust, plus hourly fees for tax preparation and legal help.

But Clifford said institutional trustees can be impersonal and unyielding. High turnover and mergers can leave beneficiaries dealing with an endless parade of trust officers and constantly changing company policies. Some people try a hybrid approach, naming an individual as co-trustee along with the institution, but not all institutions are willing to go along with such an arrangement.