As the American population ages and amasses increasing wealth, more families rely on trusts to manage assets and ultimately to transfer wealth to the next generation while achieving maximum protection from taxes and creditor claims. Trusts allow a great deal of flexibility in estate and tax planning but they are only effective if the trustee you appoint uses the powers you give him or her to carry out the purpose of your trust. Given the complexity of investment options available in today's market (think of hedge funds), the recordkeeping and reporting required for trusts, and the trustee's obligation to balance the needs of income and remainder beneficiaries, deciding who to appoint as your trustee is not an easy decision. But it is one that must be carefully considered.

You have several choices:

If you appoint a member of your family or a trusted friend as your trustee, you know that he or she will be sensitive and responsive to the needs of your beneficiaries. There will be a "real person" caring for your trust and making sure that it is providing for your beneficiaries as you would want them taken care of. However, a trustee must also be able to manage investments, make distributions and handle the administrative duties. Also, being a trustee requires a time commitment and level of legal responsibility you may not want to impose on your family member or friend.

Institutions such as bank and trust companies offer trustee services. While your trust will have the benefit of the instituion's expertise in investing and trust administration, banks and trust companies are notoriously bureaucratic and may not be as responsive to the needs of your beneficiaries as you would like. Further, an institution's fees are determined at the corporate level and could be increased at any time.

Lawyers, accountant and financial advisors also offer fiduciary services. As your trustee, you want to find a professional who will provide the "real person" caring for your beneficiaries and the expertise in trust administration. It should be someone who knows your family, understands their particular situations and can be responsive to a beneficiary's request for a distribution. A professional advisor will be familiar with the legal and tax nuances of your trust and be able to provide long-term ongoing advice and support.

Increasingly, as state law now allows it, trustees are delegating responsibility. For example, a trustee with little investment expertise will hire a financial advisor to manage the trust assets. This can work well but requires the trustee to carefully monitor the activities of the advisor. Some families use trustee committees, with particular duties delegated to the trustee with that expertise. Others appoint a trust protector who is given the power only to appoint and remove trustees. As you can see, the decision of whom to appoint as your trustee requires some planning and thinking. The best time to consider this is when your trust is being drafted.