Choosing the Trustee – An Important Decision

Trusts are truly remarkable planning tools, which can be created during life (a living trust) or in a will (a testamentary trust). They can be set up for any lawful purpose, including future money management for heirs, reduction of estate taxes, extending a person’s influence after their lifetime, avoidance of probate, financial management during time of disability, and even support for programs.

One of the most important planning decisions with any trust is the choice of trustee. The basic alternatives are:

• Yourself (for the trust you set up or as trustee for the trust of another person
• A family member
• An attorney or other professional adviser
• A trust company

Suppose someone asks you to serve as trustee of a trust. Should you say yes? Should you serve as trustee of your own trust? How should you go about finding the right person or organization to serve as trustee of the trust you plan to establish? How do you know if a trustee will “work out” for family members after your death? What will happen if a family member serving as trustee passes away before the trust ends? If you name family members as co-trustees, how will conflicts be resolved?

Trustees are, in effect, money managers. A trustee should have a good business mind, an understanding of the tax laws, a deep sense of integrity and familiarity with the needs of the trust beneficiaries. Investment skills, obviously, are very helpful. Trustees are subject to state laws on “fiduciary responsibility.” They must file reports and accountings – and can be sued for their mistakes.

Having said all that, why would anyone agree to be a trustee? It may be that sensitivity to family situations makes you or a family member a good choice as trustee, and that's certainly true of a revocable living trust you establish yourself. Tax and investment professionals can be hired to handle most responsibilities. But if the trust is large or complex, a professional or corporation should be considered as trustee or co-trustee, with you or a family member providing the “personal touch” as the other co-trustee.

Corporate trustees offer the advantage of “immortality” – that is, they won’t die before the trust comes to an end. But the fees of a professional or trust company may be too expensive for smaller trusts. It may be more cost-effective to name a family member as trustee and employ a bank or investment company simply to provide counsel and advice, rather than serve as trustee or co-trustee.

People who establish revocable living trusts that will continue after their deaths often serve as the initial trustee, perhaps with a spouse as co-trustee or successor trustee. Later, they may name an individual or trust company as trustee and thereby have the opportunity to “audition” their performance to ensure that the trustee is the appropriate person to make decisions affecting family beneficiaries.

Obviously, selection of trustees or co-trustees isn’t easy, and you should consult your advisers – such as the attorney who drafts your trust or estate plan – and ask for references if you decide to choose a professional or corporate trustee.

<Back

Copyright © 2008 by R&R Newkirk. All rights reserved.