You've spent decades raising children and creating a legacy for future generations. Now, as you work on your estate plan, you face a critical decision that could determine whether your carefully laid plans succeed or fail. Who should you trust to carry out your wishes and manage your assets when you're gone?
Many people automatically assume they should appoint a family member as trustee or executor, but this isn't always the wisest choice. Our Texarkana Estate Planning Attorney can help you understand when a professional fiduciary might be the key to protecting your beneficiaries and preserving your wealth.
Who Are Professional Fiduciaries?
Professional fiduciaries are individuals or institutions that specialize in managing trusts, estates, and other financial arrangements for clients. They bring years of training and experience to the table, making them valuable alternatives to family members who may lack the time, skills, or objectivity needed to handle your estate properly.
Unlike family members who take on fiduciary roles out of obligation or love, professional fiduciaries make estate and trust administration their full-time career. They understand the legal requirements, tax implications, and investment strategies that can make or break an estate plan.
Fiduciary Institutions
Corporate trustees, like banks and trust companies, offer institutional fiduciary services with teams of professionals handling different aspects of estate administration. These organizations provide continuity, as they don't retire or become incapacitated like individual trustees might.
Independent Trustees
Neither Texas nor Arkansas requires individual trustees to get a state license. The states charter and regulate institutional trust companies, but independent trustees don't need special government permission. Many earn professional certifications like Certified Trust and Fiduciary Advisor (CTFA) or Master Certified Independent Trustee (MCIT) through industry organizations, but these are voluntary credentials, not state requirements.
When Professional Fiduciaries Make Sense for Estate Administration
Certain family situations make hiring professional fiduciaries particularly valuable. Consider the hypothetical Hill family from Little Rock, Arkansas.
Robert Hill built a successful manufacturing business worth $15 million, but his three adult children live in different states and work in completely unrelated fields. None has experience managing investments or handling the tax issues that come with substantial wealth.
If Robert appointed his eldest daughter, Constance, as trustee, she would need to learn about investment management, tax compliance, and trust administration while grieving her father's death. A professional fiduciary could handle these responsibilities immediately, allowing the children to focus on their own lives while protecting the family's assets.
Large or Complicated Estates
Substantial assets usually require professional management. Estates worth several million dollars often include diverse investments, business interests, and real property that require specialized knowledge to manage effectively. Professional fiduciaries have the training and resources to handle these assets properly.
When trusts are designed to benefit children, grandchildren, and great-grandchildren, professional fiduciaries can provide the continuity needed for long-term success. Family trustees may not live long enough to see the trust through multiple generations.
Family Dynamics Issues
What about when beneficiaries don't get along? Professional fiduciaries can remain neutral when family members disagree about trust distributions or management decisions. They're not emotionally invested in family conflicts and can focus on the trust's best interests.
Similarly, professional trustees have experience dealing with beneficiaries who struggle with addiction or financial irresponsibility. They can make tough decisions about distributions without being swayed by emotional appeals from family members.
Benefits of Working With Professional Fiduciaries
Professional fiduciaries bring specialized training and experience that can make the difference between a successful estate plan and one that fails to achieve its goals.
Investment Management
Investment knowledge stands out as one of the most important benefits. Under the Texas Uniform Prudent Investor Act, trustees must invest prudently and diversify when appropriate. Professional fiduciaries understand modern portfolio theory, asset allocation, and market risks in ways that most family members do not.
Tax Planning
Trust taxation involves federal income taxes, state income taxes, estate taxes, and generation-skipping transfer taxes. Texas and Arkansas do not impose state estate or inheritance taxes, but large estates may still face the federal estate tax. Professional fiduciaries work with tax professionals regularly and understand how to minimize tax burdens legally.
Legal Compliance
Trustees face numerous legal requirements under both state and federal law. Professional fiduciaries stay current on changing regulations and know how to avoid costly mistakes that could result in personal liability.
Objectivity and Impartiality
A professional fiduciary can make decisions based on trust terms and each beneficiary's actual needs, without being influenced by family pressure or personal relationships.
Drawbacks and Considerations
While professional fiduciaries offer many benefits, they can also come with certain disadvantages.
Cost represents the most obvious drawback. Professional fiduciaries charge fees that can range from 0.5% to 2% of trust assets annually. For example, they use a tiered structure, charging 1.30% on the first $500,000 and scaling down to 0.60% over $2 million. Professional fiduciaries may also charge extra for services like tax preparation, legal consultation, or real property management.
Professional fiduciaries don't have the same emotional connection to beneficiaries that family members do. While this objectivity can be beneficial, it may also result in less flexibility or understanding when beneficiaries face personal crises.
Trustee Selection Factors to Keep in Mind
The process of choosing a professional fiduciary requires careful research and consideration. Not all professional fiduciaries are created equal, and the wrong choice could cause significant problems for your beneficiaries.
Key Qualifications
Start by evaluating the fiduciary's qualifications. Trust companies must meet specific capital requirements and undergo regular examinations under state banking laws. Individual professional trustees should demonstrate competence through relevant education and experience. Verify that potential fiduciaries hold current professional credentials and maintain any required certifications.
Relevant Experience
Look for fiduciaries who regularly handle trusts similar in size and complexity to yours. A fiduciary who primarily works with $500,000 trusts might not be the best choice for a $10 million estate.
Professional References
Ask for references from other Estate Planning Attorneys and existing clients. Professional fiduciaries should be willing to provide references, though client confidentiality may limit the details they can share.
Hybrid Approaches and Alternatives to Professional Fiduciaries
Some families find that combining professional fiduciaries with family involvement creates the best solution. These hybrid approaches can provide professional expertise while maintaining family connection and oversight.
Co-Trustee Arrangements
Co-trustees represent a popular option, where a family member and professional fiduciary serve together. The professional handles investments and administrative duties, while the family member provides personal knowledge and maintains relationships with beneficiaries.
Suppose James Davis from Fort Smith wants his son Calvin to remain involved in the family trust, but Calvin works as a teacher and lacks investment experience. By appointing Calvin and a professional fiduciary as co-trustees, James gets the benefit of both professional expertise and family involvement.
Under this arrangement, Calvin can focus on distribution decisions and family communication, while the professional fiduciary handles investments and tax compliance. In Texas, co-trustees act by majority decision by default unless the trust says otherwise, providing checks and balances that protect the trust.
Trust Protectors
Some trusts include trust protectors who can remove and replace trustees, modify trust terms, or make other specific decisions. A family member could serve as a trust protector while a professional fiduciary handles day-to-day administration.
Advisory Committees
Advisory committees made up of family members can provide guidance to professional trustees about family values and beneficiary needs. These committees have no legal authority but can help professional fiduciaries make better decisions.
Find the Best Path Forward With Your Estate Planning Attorney
Your Estate Planning Attorney plays a crucial role in helping you decide whether professional fiduciaries make sense for your situation. They can evaluate your family dynamics, estate size, and planning goals to recommend the best approach for your specific circumstances.
At Ross & Shoalmire, P.L.L.C., our Attorneys work with several professional fiduciaries throughout Texas and Arkansas. We can help you identify qualified professionals, interview potential candidates, and structure trustee arrangements that meet your family's unique needs.
The decision to use professional fiduciaries isn't one you should make hastily. Take time to consider your options, discuss the possibilities with your family, and get professional guidance from experienced Estate Planning Attorneys who understand the laws in Texas and Arkansas.
Professional fiduciaries offer valuable services that can protect your legacy and provide peace of mind for your family. By understanding their benefits and limitations, you can make informed decisions that serve your beneficiaries well for generations to come.
