When selecting a person to serve as the successor trustee of a trust, you often wonder if you are making the right decision. Generally, the person making the trust serves as trustee for as long as he or she is able or alive. Choosing who to act as trustee in the event the person becomes disabled or dies can be extremely difficult, as the person you select must be responsible and trustworthy.
For most parties, anyone can serve as trustee. In addition to family and friends, you can select a professional trust company to manage your trust when you no longer have the capacity to do so. Many banks have fiduciary departments that provide fiduciary services. Lawyers and accountants will often agree to act as trustees for their clients’ trusts.
Parents will frequently select their children to act as trustees by default. For people with a child, that decision seems like a no-brainer: “John is going to receive our entire estate, so why not make him trustee?” This seems logical and is often the right decision.
For parents with multiple children, the decision becomes more complicated: “If we choose Suzy, will John think we have favorites?” Selecting a trustee becomes more difficult when you have blended families or divorced parents. I can’t tell you the number of divorced clients who ask me if their ex-spouse will have access to the client’s money if she dies before her children turn 18. Without a properly drafted will or trust, the answer is probably.
The trustee owes the beneficiaries of his trust a fiduciary duty to act impartially and in the best interest of all beneficiaries of his trust. It is difficult to select a person who can fulfill this duty and many other fiduciary duties. When selecting a trustee, a number of factors must be considered. Here is a short list of general factors I ask people to consider when selecting a trustee:
1. Do you trust the person you are appointing trustee?
If you answer no, or hesitate, then the person is probably not a good fit to serve as trustee. If her son has a gambling problem, she may want to avoid naming him trustee. Most trusts name the same person to act as successor trustee after her death and if he becomes incapacitated during his lifetime. In addition to squandering his inheritance, he may squander his estate during his lifetime if he becomes incapacitated.
2. Do the trustee and beneficiaries get along?
Although death can bring families together, it can also tear them apart. If you have two children who fight with each other during their lifetime, or don’t speak to each other at all, it’s generally a bad idea to appoint them as co-trustees. In general, serving as co-trustees will not bind your children.
Also, naming one sibling trustee over the other will increase resentment and create conflict between the sibling trustee and the sibling beneficiary. The dispute amounts to attorneys’ fees after his death.
Many parents want to name their children as co-trustees as they get along so well and parents can’t imagine their children fighting over money. While children can serve as co-trustees, you need to realize and think about the fact that the excellent relationship your children had during their lifetime can quickly deteriorate when money is involved. For example, your daughter thinks that she should be buried on the family plot, a costly endeavor. Your son wants you to become a member of the Neptune Society because the expensive burial will destroy his inheritance. These fights over money can destroy any goodwill built up during your life.
3. Do you have children from multiple relationships?
The successor trustee in these situations needs to have a strong relationship with the stepchildren or half brothers and sisters. Will the trustee play favorites or make decisions that tend to affect your children versus your stepchildren? Couples who have children from previous marriages will try to solve this problem by naming a child from each relationship as co-trustees. Essentially, the couple expects each child to represent the interest of the child’s siblings.
This is not always the case and a couple in this situation should consider appointing a professional trustee to eliminate issues of favoritism and bias.
4. Is your estate plan complex?
A complex trust that has many sub-trusts set up for the various beneficiaries can be confusing for the average person to manage. Each trust may require the trustee to make different decisions regarding the investment and distribution of assets, so keeping track of those standards can be confusing and overly burdensome.
You can set up a supplemental needs trust for one of your children, a spendthrift trust for another, and then minor beneficiary trusts for your grandchildren. The trustee must manage the assets in these trusts through the application of different investment strategies and different distribution schemes.
5. What is the total value of your estate?
The value of your estate is important as some professional trust companies and banks will only serve as trustees for larger estates ($1.0 million in assets), but there are some that will serve as trustees for smaller estates.
Depending on family dynamics and the complexities associated with your trust, a smaller estate may need a professional trustee to ensure trust assets are properly managed and distributed. If the estate is not large enough for a bank or trust company to act as trustee, an attorney, certified public accountant, or financial planner may be willing to step in and act as trustee to ensure the trust is managed by a third party. neutral.
These are just some of the factors you want to consider when selecting a trustee. Unfortunately, you’ll never know if you made the right decision until it’s too late.
© 1/17/2014 Kevin J. Tillson of Hunt & Associates, PC All rights reserved.
