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How to be Your Own Trustee (and Why You May Not Want to)

October 29, 2018

“A [self-trusteed] revocable living trust is not unlike a mirror maze in a funhouse where you see yourself in every glass. When you set up the trust, you give some or all of your property to yourself as trustee. You no longer own it; your trustee, who happens to be you, does. (I told you this was done with mirrors.)”

—Jane Bryant Quinn

Making the Most of Your Money

More and more people are setting up living trusts, mainly to provide for their beneficiaries without the delays and publicity associated with probate.

The best approach, we suggest, would be to name a trust institution as trustee, and many people do. But some want to try out being their own trustee.

What would you have to do as your own trustee? The specifics depend on the directions you give yourself—the terms of the trust agreement. In general, a trustee receives the investments or investable assets to be held in trust, invests prudently, and keeps detailed records of purchases and sales, receipts, and disbursements.

Presumably, a few superorganized individuals do a good job of self-trusteeship. But tales of misfortune abound. Many “do-it-with-mirrors” trusts have proved useless. Empty. Apparently, the grantors (as people who create living trusts are called) forgot to retitle their assets.

Some grantor-trustees make a brave start, then get distracted by other business. After four or five years of unrecorded investment changes, additions, and withdrawals, even a team of all-star accountants may not be able to find what’s left of the trust.

Two misconceptions

Why do so many people try to act as their own trustee? Two reasons, according to our informal surveys.

First, people are afraid they can’t afford our services as trustee.

Second, they fear that employing a trust institution as trustee would require them to give up control of their assets, which they’re unwilling to do.

We’re happy to report that both fears are groundless. Our annual fees as trustee are likely to be less than the expenses they would incur if they did their own investing through a major Wall Street brokerage firm. What’s more, our services as trustee actually give our clients better control of their financial destinies.

As a result, more and more people who might otherwise settle for “do-it-with-mirrors” trusts are taking advantage of our services instead.

Trust service is a bargain. Our annual fees as trustee are competitive with those of other investment managers and counseling firms: around 1% or less of market value annually, depending on account size. Transaction costs add little to our client’s expenses, thanks to the low institutional rates available to us as a corporate trustee.

By comparison, a do-it-yourself trustee who invested in stocks and bonds through a major brokerage firm is likely to spend more than 2% of account value annually, according to some estimates. Especially active accounts may incur substantially higher annual costs. Similarly, investors with wrap accounts or mutual fund accounts at full-service brokerage firms can expect annual costs of 2% to 3% annually.

Our trust service is not merely affordable, it is, we believe, an exceptionally good value.

Keeping control. When a new client establishes a revocable living trust and designates us as trustee, our job is to do what the client wants done, as spelled out in the trust agreement. The client is free to change the trust agreement or to revoke the trust altogether. Nothing’s “tied up.”

As trustee, we provide clients with an objective investment viewpoint and regular progress reports. They know where they stand and where they’re headed, financially speaking. They can be as involved or uninvolved in specific investment decisions as they wish. And, of course, they’re always free to replace us as trustee if our work doesn’t meet their standards.

Testing, testing . . . . Do-it-yourself trust kits often suggest that a trust institution be named as successor trustee, to take over when needed—that is, when the creator of the trust becomes incapacitated or dies. According to a number of our trust clients, there’s a better approach. They have put us to work as trustee from the start, retaining as much control as they wished.

The advantage of this approach is that our clients and their families have the opportunity to test and evaluate our services as trustee. Also, family members get to know us and see how we go about our work. Likewise, we have a chance to get to know them.

Discover the difference. If you’re considering a living trust, come talk with us. Like many other men and women, you’ll probably discover that our services as trustee are a most practical alternative to doing it yourself.

© 2018 M.A.Co. All rights reserved.

 

 

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