Many Trusts written today are “Self Trusteed” meaning the grantor of the Trust acts as trustee. While you are alive and competent, you can serve as Trustee. If desired, your spouse can serve with you. However, who should serve as Trustee upon your death or incapacity if your spouse is not available?
Choosing a Successor Trustee can be tough. A dependable grown child will see to your welfare but may not be qualified or have the best business judgment. A business associate might manage your money well, but you may not trust him with family relationships. A bank has investment experience, is dependable, and will handle the paperwork, but it’s not cheap.
What Do Trustees Do?
The Trustee has the responsibility of managing the Trust assets. Ideally, the Trustee should be someone who can keep records and follow the instructions of the Trust document. While the Trustee need not be a financial genius, the Trustee should know his or her own limits and be able to select appropriate advisors.
Here is just a partial list of what a Trustee may need to do when managing your estate:
- Assumes legal responsibility for the proper administration of the Trust
- Investigates claims against the Trust and opposes invalid claims in court
- Seeks legal counsel when needed
- Establishes bookkeeping procedures
- Inventories and changes titles of assets
- Pays bills
- Performs ongoing accounting
- Submits records for independent audit
- Reviews assets regularly for quality and performance
- Makes timely and thoughtful adjustments to the portfolio
- Promptly collects all assets and related income
- Tracks dividend notices, bond calls, and maturities
- Maintains detailed records of all assets and transactions
- Documents asset acquisition dates, cost basis, and adjustments
- Keeps records of taxable income
- Files annual Trust tax returns
- Furnishes information for beneficiary tax returns
- Communicates regularly with beneficiaries
- Distributes principal
- Arranges for the security, insurance, and maintenance of personal residences and other real estate
- Facilitates transfer of property to beneficiaries or new owners
- Makes sure that the requirements of the courts and taxing authorities are met
- Prepares federal estate tax, final income tax, gift tax, and generation-skipping tax returns as required
- Investigates and discharges obligations to creditors
- Determines final distributions in keeping with the Trust agreement
- Arranges final transfer of assets
Qualities Needed By a Successor Trustee
When deciding whom to select as Trustees, you should consider whether they are worthy of your Trust and are willing to accept the job. Other things to consider include:
- Do they have the experience and knowledge to manage your financial affairs appropriately?
- When called upon to make a decision that may affect other family members, will your Trustee act in a fair and unbiased manner?
- Do they have any investment experience?
- Will their fees be affordable?
- Will the named Trustee have enough time to manage the Trust?
- Will they manage your assets in accordance with your wishes while maintaining good relationships with beneficiaries, advisors, and other fiduciaries? The Trustee will have broad discretion to accomplish your goals. This means that they will make distributions made to beneficiaries based on their needs. Since “needs” can be subjective, friction can arise. Your Trustee will need to be someone that can work well with these beneficiaries in a fair way. The same applies to advisors and fiduciaries.
Who Should You Choose?
While it seems natural to choose a family member or close friend to settle your estate, your selection of a Successor Trustee can make a difference in how fast your estate is distributed and can affect family relationships for years to come.
- If your Successor Trustee has no bookkeeping experience and knows nothing about finance, settling your estate can take longer and result in higher attorney’s fees.
- Naming a family member as Successor Trustee can also place him or her in the delicate position of arbitrating disputes between other family members about the distribution of personal property.
Sometimes a family member is not the right choice. For instance, friction can occur if one sibling is serving as a Trustee over another sibling, or a stepparent serving as a Trustee for his or her stepchildren. In cases like these, or where friction already exists, you may want to consider a Corporate Trustee. Since a Corporate Trustee has experience administering Trusts and managing assets, they can be unbiased when friction occurs.
The other possibility is to choose a family member or friend to be a Co-Trustee with a bank or corporate entity. The individual Trustee knows the family dynamics and the beneficiaries on a personal level. The bank is unbiased and is not embroiled in the family politics.
A carefully chosen Trustee is critical to implementing your estate plan. An attorney that specializes in estate planning and who is sensitive to your family’s issues can help you design a plan and select a Trustee to achieve your goals.