When selecting an individual to serve as successor trustee of a trust, they often wonder if they are making the right choice. Generally, the individual making the trust serves as trustee for so long as they are capable or alive. Choosing who to serve as trustee in the event the individual becomes disabled or dies can be extremely difficult since the person that you select needs to be responsible and trustworthy.
For the most party anyone can serve as a trustee. In addition to family and friends you can select a professional trust company to administer your trust when you no longer have the ability to do so. Many banks have trust departments that provide trustee services. Attorneys and accountants frequently will agree to serve as trustee of their clients' trusts.
Parents will frequently select their children to serve as trustee by default. For individuals with one child, that decision seems like a no-brainer - "John's going to receive our entire estate so why not name him trustee?" This seems logical and oftentimes it is the right decision.
For parents with multiple children the decision becomes more complicated - "if we choose Suzy will John think that we are playing favorites?" The selection of a trustee becomes more difficult when you have blended families or parents that are divorced. I can't tell you the number of divorced clients that ask me if their ex-spouse will have access to the client's money if they pass away before their children reach 18. Without a properly drafted will or trust, the answer is probably.
The trustee owes the beneficiaries of your trust the fiduciary duty to act impartial and for the benefit of all of the beneficiaries of your trust. Selecting an individual that can fulfill this duty and many other fiduciary duties is difficult. In selecting a trustee, a number of factors should be considered. Below is a short list of the general factors that I ask people to consider in selecting a trustee:
1. Do you trust the person you are naming trustee?
If you answer no, or you hesitate, then the person probably isn't a good choice to serve as trustee. If your son has a gambling problem you may want to avoid naming him trustee. Most trusts name the same person to serve as successor trustee following your death and if you become incapacitated during your lifetime. In addition to squandering away his inheritance he may waste your estate away during your lifetime if you become incapacitated.
2. Do the trustee and beneficiaries get along?
Although death can bring families together, it can tear families apart too. If you have two children that are at each other's throats during your lives, or don't talk to each other at all, it's generally a bad idea to name them as co-trustees. In general, serving as co-trustees will not bring your children together.
Additionally, naming one sibling trustee over the other will further resentment and create conflict between the trustee-sibling and the beneficiary-sibling. Conflict equals attorney fees after your death.
Many parents want to name their children as co-trustees since they get along great and the parents can't imagine their children fighting over money. Although children can serve as co-trustees, you need to realize, and think about, the fact that the great relationship that your kids had during your life can deteriorate quickly when money is involved. For example, your daughter thinks that you should be buried in the family plot - an expensive endeavor. Your son wants you to become a member of the Neptune Society because the expensive burial will eat away his inheritance. These fights over money can destroy any goodwill built up during your lifetime.
3. Do you have children from multiple relationships?
The successor trustee in these situations needs to have a solid relationship with the stepchildren or half brothers and sisters. Will the trustee play favorites or make decisions that tend to impact your children versus your stepchildren? Couples that have children from previous marriages will attempt to resolve this issue by naming a child from each relationship as co-trustees. Essentially, the couple hopes that each child will represent the interest of the child's siblings.
This is not always the case and a couple in this situation should consider naming 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 a lay person to manage. Each trust may require the trustee to make different decisions concerning asset investment and distribution such that keeping track of those standards can be confusing and overly burdensome.
You may establish a supplemental needs trust for one of your children, a spendthrift trust for another and then minor beneficiary trusts for your grandchildren. The trustee will need to manage the assets in these trusts by applying different investment strategies and distinct distribution schemes.
5. What is the value of your overall estate?
The value of your estate is important since some professional trust companies and banks will only serve as trustee for larger estates ($1.0 million in assets) but there are some that will serve as trustee for smaller estates.
Depending on the family dynamics and the complexities associated with your trust, a smaller estate may need a professional trustee to ensure that the trust assets are properly managed and distributed. If the estate's not large enough for a bank or trust company to serve as trustee, an attorney, CPA or financial planner may be willing to step in and serve as trustee to ensure the trust is managed by a neutral third party.
These are just some of the factors that you want to consider in selecting a trustee. Unfortunately you will never know if you made the correct decision until it's too late.
© 1/17/2014 Kevin J. Tillson of Hunt & Associates, P.C. All rights reserved.
Kevin J. Tillson is a Shareholder and Associate Attorney with the law firm Hunt & Associates, PC in Portland, Oregon. He is licensed in Oregon and Washington and maintains a general practice including estate planning, business law, real estate law, family law, misdemeanor criminal defense and personal injury. For additional information, please check out the company's website: http://www.huntpc.com