Close Menu

Oxford Financial Group, LTD


Oxford Financial Group, LTD


Expert Perspective

News, research and market insights from our team of experts.


Current Issue | December 20, 2018

The Value of Choosing a Professional Trustee/Personal Representative

By: Kate Borkowski, JD, Manager, Fiduciary Officer

Trusts play an integral role in estate planning, and choosing a trustee is a task not to be taken lightly. The trustee is the person upon whom you are relying to carry out your wishes for managing and/or distributing your assets, most often, after you have passed away. In addition, acting as trustee carries a high degree of responsibility because a trustee is personally liable for his or her actions. Much like a trustee, choosing a personal representative for your estate is an important decision to make.

The Role of the Trustee
A trustee has a duty to manage the assets of the trust according to the laws of the state and terms of the document. The trustee must take possession and maintain control over the trust property without commingling it with the trustee's own individual property. The trustee must keep the beneficiaries reasonably informed about the trust and the trust property, treat the beneficiaries impartially and make the trust property productive for both income and remainder beneficiaries. Further, the trustee must take whatever action is reasonable to realize on claims constituting part of the trust property, defend actions involving the trust estate and supervise any person to whom authority has been delegated.

Many of these same duties apply to a personal representative of an estate. A personal representative must take possession and maintain control over the estate property without commingling it with the personal representative's own individual property. The personal representative must wind up all of the affairs of the decedent, including paying final debts owed by the decedent, filing a final income tax return for the decedent and income tax returns for the estate, disposing of the decedent's assets and providing the heirs with an accounting of the estate.

Advantages of Choosing a Professional Trustee
In light of the above responsibilities, choosing a professional trustee/personal representative to act may be a better choice than choosing an individual to act as trustee/personal representative. There are several advantages to choosing a professional trustee/personal representative. First of all, a professional will exist indefinitely. Individuals pass away, determine they no longer want to act due to the time commitment or may even become incapacitated.

A professional trustee's location is permanent, which may be important for tax reasons. The trust is a taxable entity, and it will be taxed according to the income tax laws of the state of its administration. If an individual moves to a different state, thereby changing the situs (administration) of the trust, then the trust may be subject to the new state's income tax laws. Maintaining a permanent situs allows for predictability and potential planning for the application of favorable state laws. Although estates are also taxable entities, the administration is taxed according to the laws of the decedent's domicile state; therefore, this situation does not apply to a personal representative.

Next, a professional trustee/personal representative administers trusts on a regular basis, and is familiar with trust and will terms and how to interpret the documents, allowing them to administer the trust/will as intended. Professionals are familiar with a wide variety of assets that may be held in trust or by an estate, whereas an individual may only be familiar with financial assets. In addition, a professional is familiar with the issues that arise during administration of a trust or estate, including legal issues, filing and compliance requirements, etc.

A professional trustee/personal representative has superior experience and expertise, because they have better access to information, such as changes in law and financial news. They are familiar with potential opportunities dealing with investments, tax savings and estate planning techniques and have a network of competent professionals to provide advice on these opportunities. Often, a professional trustee is responsible for making discretionary distributions from the trust when a beneficiary makes a request. Forcing a family member or friend to deny a questionable distribution request can cause bad feelings among family members, whether warranted or not. It is easier for a professional trustee to be objective when making this decision than it is for an individual trustee, thus allowing the professional trustee to treat the beneficiaries impartially. Allowing a professional trustee to act as the "bad guy" can maintain family harmony.

Finally, a professional trustee/personal representative is regulated by federal and state agencies, and they maintain internal controls to administer trusts and estates. As a result, he or she is considered an "expert" and most often held to a higher standard of responsibility. A professional trustee/personal representative has more safeguards against fraud, theft and error. If an individual is acting and found guilty of fraud or theft, the individual may be insolvent or unreachable, thus, limiting recovery. Since the professional has significant assets and liability insurance, recovery is more likely.

The Trust Company of Oxford can act as the trustee of your trust(s), while you are living or after you have passed away, and/or act as the personal representative of your estate. Please contact an Oxford Managing Director or Fiduciary Officer to discuss the specific details of your estate and family situation to determine if a professional trustee/personal representative is right for you.