Family trustees versus professional trustees

Start with the trust and the proposed work

In Minnesota, for example, trust terms generally govern trustee duties, powers and relationships, subject to mandatory statutory rules. Upon acceptance, administration must follow applicable law and the trust’s terms and purposes, in good faith and in beneficiaries’ interests. Other states differ.

Ask each candidate to describe the proposed division of work. Discuss availability, investment support, tax support, legal support, communication, compensation and succession without assuming the answers from a family relationship or an institutional name.

Compare delegation and oversight

In Minnesota, for example, a trustee may delegate duties and powers that a prudent trustee of comparable skills could properly delegate under the circumstances, including to someone associated with the trustee. Other states differ.

The trustee must exercise reasonable care, skill and caution in selecting the agent, setting delegation terms consistent with the trust’s purposes and terms, and periodically reviewing performance and compliance.

The agent owes the trustee reasonable care in complying with the delegation, and the trustee must enforce that duty. A trustee complying with both these requirements and the selection, scope and review requirements is protected from liability for the agent’s actions.

Accepting delegation from a trustee of a trust subject to Minnesota law submits the agent to Minnesota court jurisdiction.

For either candidate, ask for a description of the work to be delegated, the proposed agent and how performance will be reviewed. Include any existing investment adviser in that discussion.

Compare compensation and expenses

In Minnesota, for example, trustee compensation follows the trust’s terms or, if unspecified, must be reasonable under the circumstances. Other states differ.

A court may adjust specified compensation if duties differ substantially from those contemplated when the trust was created, or if the specified compensation is unreasonably low or high.

Proper administration expenses are reimbursable from trust property, with interest as appropriate. Improperly incurred expenses are reimbursable only to the extent necessary to prevent unjust enrichment of the trust.

An advance protecting the trust creates a reimbursement lien with reasonable interest. Investment and management costs must be appropriate and reasonable relative to the assets, trust purposes and trustee’s skills.

Request a written fee proposal from each candidate. Ask separately about trustee compensation, outside advisers, property work and other expenses so you can compare the proposed services.

Discuss business interests and real estate explicitly

In Minnesota, for example, default trustee powers include continuing businesses, repairing or developing real estate, leasing, insuring trust property and investigating environmental exposure, subject to trust limits and fiduciary duties. Other states differ.

Business powers concern interests in businesses or enterprises, and real estate powers concern interests in real property. A lease may extend beyond the trust’s duration.

Environmental investigation powers concern property held or proposed to be held, directly or through an organization. A trustee may decline property or disclaim powers over property that is or may be burdened by environmental liability.

These powers do not establish a candidate’s expertise or willingness to administer an asset. Ask each candidate about your actual properties and business interests before comparing proposals.

Distinguish national bank requirements from general professional labels

National banks obtain federal authority to act as trustee through an OCC special permit within the statute’s state law framework. The permit concerns fiduciary capacities available to competing state banks, trust companies or other corporations where the national bank is located.

State authorization of those competing institutions satisfies the statute’s stated noncontravention rule. National banks exercising these powers must segregate fiduciary assets from general bank assets and maintain separate transaction books and records.

Before accepting a fiduciary account, a national bank must review whether it can properly administer the account. For accounts with investment discretion, it must promptly review all assets after acceptance for appropriateness.

At least once each calendar year, it must review all assets of each account with investment discretion for individual and collective appropriateness. These provisions do not prescribe automatic sale of private assets or replacement of an existing adviser.

These are national bank requirements, not requirements for every professional trustee. They provide neither a guarantee of recovery nor a universal minimum for assets under administration.

Ask a proposed bank trustee how its acceptance review would address your private assets and existing adviser. Ask other candidates to explain their own acceptance and asset review procedures.

Two related terms

Duty of loyalty: In Minnesota, for example, this duty requires a trustee not to place personal interests above beneficiary interests. Other states differ.

Duty of impartiality: In Minnesota, for example, a trustee administering a trust with two or more beneficiaries must give due regard to their respective interests. Other states differ.

Experience can be specific to a field

One speaker’s reflection offers a useful prompt for candidate interviews: ask about experience with the particular assets and work involved.

"So, you know, I didn't know a lot about private equity. I heard about family office, but didn't know a lot about it. You know, I was just kind of like most of us in the financial service industry, we're kind of in our silos."

Common questions