Trusts are increasingly common – even in middle class estate planning – for their effectiveness in avoiding probate, protecting assets, helping minor children, and serving the disabled.
If you’re not the trustee of your own trust, who should you name? Even if you are the initial trustee, who should you name to succeed you if you become incapacitated?
These questions are important but the answers are not always easy.
A family member often serves as trustee for a number of reasons. First, there is often a trusted family member, such as an adult child, who already helps out with financial matters. Using that person fit naturally into the current family scheme. Second, the client usually has a high degree of trust in a close family member. Their goals may be very similar, and a family member often knows a great deal about the intentions of the person who created the trust. Third, the family member may perform as trustee for little or no compensation.
It is important to note that the trustee has important responsibilities and fiduciary duties. Reliability and trustworthiness are therefore crucial. Many family members are honest and trustworthy enough to perform this task, but keep an eye out for indications of family disharmony, addiction problems, and mismanagement in other areas of life.
Naming co-trustees can address concerns about the ability of any one trustee to serve competently and responsibly. I have found that clients often wish to name co-trustees for other reasons, such as not wanting to single out any individual child. Whenever a trust names co-trustees, it should specify whether each co-trustee may act independently, without the signature or consent of the other co-trustee, or not. Having non-independent co-trustees can help ensure responsible action, but clients must balance that goal against the burdensomeness of always obtaining two signatures to take any action.
A corporate trustee can often be a good choice. While generally more expensive, a corporate trustee can bring professionalism and expertise that are well worth the cost. Trust officers have experience making distributions, filing tax returns, and keeping accurate accounts of their activities. A corporate trustee also offers longevity – the bank or trust company will likely be around in 25 years and able to serve, while a family member may not.
Many of these trusts will remain in place for 5, 10, 20 years or more. Spend some time at the beginning making a good choice about who can serve effectively during that time.