Choosing a Trustee
You have decided that a trust is the right planning tool for you, but now you are being asked to identify a Trustee for the trust. Should it be your oldest child, or maybe the youngest? What about someone that is more independent like your neighbor. Or how about a professional like your accountant? Choosing the right Trustee can significantly increase the likelihood of a smooth administration of the trust in accord with your wishes. Picking the wrong trustee can lead to litigation, delay or worse.
The Trustee is the person who will manage the assets of the trust. The Trustee will be required to preserve assets, make investments, deposit income, pay bills and taxes, prepare inventory and accountings, and make distributions for beneficiaries. The trust may be very detailed in its instructions at one end of the spectrum or leave everything to the discretion of the Trustee at the other end. Depending on the nature of the trust, the Trustee may serve for a very limited time, a period of years, or in perpetuity.
For revocable trusts, the person who created the trust often serves as the initial trustee. For an irrevocable trust that is often improper and may thwart the purpose of the trust. A common option is appointing an individual who is personally close to you. This is often a family member, a son or daughter, a brother or sister. It also may be a trusted friend. If an individual is selected, he or she should be:
trustworthy
responsible
willing to honor your wishes
capable of handling investments and business affairs
have sufficient time to carry out his or her duties
not easily swayed by pressure or criticism
capable of diffusing difficult situations.
Two factors that are completely irrelevant in choosing a Trustee, yet often seem to work their way into the discussion, are gender and birth order. A person is not qualified to be a Trustee simply because they are the oldest or they are the oldest son. Today it is much easier for a Trustee to be located far from where the trust assets are located, but in certain instances distance can still make administration more challenging.
Another option is appointing a professional Trustee. A professional Trustee is often a bank, brokerage, or independent trust company. In some jurisdictions, accountants, attorneys and financial advisors can also provide these services. A professional Trustee is usually much better than an individual at following your instructions. A professional Trustee can almost never be influenced to make improper distributions, improperly withhold distributions, or invest assets imprudently. A professional Trustee often has the benefit of attorneys, accountants and others on staff to assist with the administration. A professional Trustee offers the advantages of long experience in trust administration, investment expertise, and provides detailed regular accountings to beneficiaries of the trust assets and transactions.
Some worry that a professional Trustee will be too sterile or detached and not concerned with the needs of the family. One option would be to name a trusted individual to serve as co-trustee alongside the professional Trustee. In this instance, the trust should be very clear on their respective roles. Additionally, having a family council to oversee and advise the professional Trustee on the wishes of the family can be very beneficial. One last thing to consider is naming a trusted advisor as the “Trust Protector” capable of removing the Trustee. If a professional Trustee can be “fired” in this fashion they will have a greater incentive to deliver the services you are expecting.
The choice of the Trustee is a significant one. Whether it is an individual or professional, sufficient time should be spent investigating the capacity and willingness of potential nominees to the office of Trustee. If you have already created your trust, do not forget to review and update the Trustees when necessary.
This post is for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Nothing herein creates an attorney-client relationship between Hallock & Hallock and the reader.