Who Do You Trust? Selecting an Executor or Trustee - A Primer
by James V. Quillinan, Attorney at Law
The Letitia Building
70 South First Street
San Jose, California 95113-2406

The individual fiduciary may have an appreciation for certain types of estate property that the testator or settlor would like to see preserved and kept in the family such as heirlooms and collectible items. Likewise, an individual may have familiarity with the operation of family and closely held businesses.

Even if the testator or settlor selects a corporate trustee, consideration should be given to naming an individual, often a beneficiary, as well. As one authority has written: "A spouse or a chid should be given every consideration as a co-trustee of his [or her] own trust. In that way, the beneficiary will gain a sense of participation in the handling of his [or her] finances. The presence of at least one experienced co-trustee should be enough to preclude the beneficiary from decisions that might be destructive." If a beneficiary is excluded from serving, you may soften the effect with a separate letter tactfully explaining the reasons behind the decision.

Potential disadvantages.Most nonprofessionals who serve as executors or trustees have not done so in the past. Thus they are unfamiliar with carrying out fiduciary obligations and performing the required duties. People "tend to gloss over the gritty details and think in terms of such broad generalizations as 'manage my estate' and 'take care of my kids.'" A persons' failure to examine the actual function of a fiduciary may lead to several undesired results. First, the fiduciary may simply not perform the duties adequately, resulting in loss to the estate or beneficiaries. Second, the individual fiduciary may hire professional assistance, thereby increasing expenses, to the detriment of the estate or beneficiaries.

The individual fiduciary's lack of experience may also affect the type, quality and management of investments. A nonprofessiolal trustee may lack experience in making prudent investment decisions and in managing estate assets. Third parties, such as stock transfer agents and insurance companies, may require additional documentation from an individual trustee, which slows down the asset transfer process as well as increasing the cost.

An individual fiduciary is less likely to be financially solvent than a corporate fiduciary. He or she may lack significant assets that the beneficiaries could reach to remedy a breach of fiduciary duty.

If the individual fiduciary is a family member, there may be increased family strife and conflict-of-interest concerns. "The family relative who serves as trustee could see his [or her] family relationship destroyed because of arguments over favoritism." You may not want to place a surviving spouse in the position of playing favorites among the children or force a child to make decisions regarding the child's siblings. Likewise, "naming children from an earlier marriage as trustees of a QTIP marital trust for a surviving spouse may invite trouble."

Similar problems may arise even if the fiduciary is not a family member. Because of the individual fiduciary's close contact with the beneficiaries, many of whom may have conflicting desires and goals (e.g., income beneficiary vs. remainder beneficiary), the fiduciary could "become a hapless umpire for disputes among disgruntled and unreasonable parties -- a thankless job compensated primarly by sleepless nights and heartburn."