Estate planning has more challenges than most realize, and the biggest challenge (by far!) is just getting your initial estate planning done. One of the critical decisions involved with a trust-based estate plan is who will be the surviving trustee, or the manager, of the trust after you are gone? The trustee is responsible, and liable, for the management of the trust assets for the benefit of the beneficiaries. Typically, the individual, or the couple, will be the trustee while they are living, so the remaining question is who will be the successor trustee?
Many times clients will choose an individual, typically a family member, as successor trustee. We often get asked whether they should consider a corporate, or 3rd party, as trustee. There are a lot of issues involved in answering this question, whether as an initial successor trustee or perhaps as a new successor trustee replacing the earlier-selected family member.
10 Things to Consider When Naming a Trustee
Here are a few questions you should consider when making this choice:
- Who are the individual trustee options available? Many times there are a lack of reliable individuals available for this role. Just because someone is a family member, or a close friend, that doesn’t automatically qualify them to be your individual trustee. Trust is a big factor in this decision.
- Will my individual trustee alternatives be able to say “No” to a beneficiary, and truly perform the management role my trust requires for them to do as trustee? Can my individual trustee alternatives remain neutral as a trustee? Many times the trustee is the key to protecting the assets in the trust and fully following the terms of the trust.
- Will my individual trustee alternative really have the time to be a trustee in the role I’m asking them to perform? People are busy, especially individuals who are qualified to act as trustees. They are, quite typically, very busy with their own careers. A trustee role can vary based on the beneficiary, but it is important to ask, “Will my individual trustee truly take the time to be the trustee I’m envisioning for the future?“
- Does my individual trustee alternative have the expertise, or the ability to hire needed assistance, to perform as a trustee? Ideally, the individual trustee will have a base of knowledge to fully understand their role, and to competently hire expertise as needed. For instance, a trustee typically hires a financial advisor or an accountant for their duties. Will the person you’ve identified as a potential trustee actually hire expertise vs. committing serious mistakes on their own? What is the incremental cost of hiring this expertise?
- What is the chance of “leakage” from my trust for unnecessary activities, unfortunate decisions, or simple mismanagement of trust assets? Any leakage from the trust results in less benefit going to the beneficiary. If there is any risk of fraud or misuse of funds, the individual trustee should be quickly disqualified.
- Does my individual trustee keep good records, document decisions, and generally reduce the liability of the trust with proper management of the trust assets? An individual trustee MUST document items, keep a clean paper trail, and generally perform like a corporate trustee would, or they risk liability for the trust.
- Do I want to subject my individual trustee alternatives to the potential liability they will have, including personal liability, when acting as a trustee? Unless the trust reduces the trustee liability, all individual trustees are subject to the same Uniform Trust Code of the respective state of the trust.
- How old are my individual trustee alternatives, and how old will they be when I’m most likely to pass away? Individual trustees do actually die, or they can become less functional as they get older. Choosing a parent as a trustee is usually only a short-term alternative due to the age differences.
- Have you actually looked at the corporate trustee alternatives (versus an individual trustee)? What are their actual costs per year, and how does this additional cost reduce any risks of an individual trustee? What are their minimum costs per year, and how do these minimum costs match up with the size of my trust? For instance, a $3,000 minimum gets pretty expensive as a percent of assets when the assets fall below $300,000.
- How does a corporate trustee actually work, and can you add terms to your trust to give your beneficiaries some leverage to ensure the corporate trustee performs as expected? There is a balance with this approach, but providing reasonable beneficiaries an ability to “fire” a corporate trustee for non-performance can be helpful if properly used.
Depending on the size and complexity of a trust, a corporate trustee may make a lot of sense. Many clients never even consider this alternative, and sometimes it truly is the best alternative. We encourage clients to talk with us further as they adjust their current estate plans and create new ones. Every case can be different, and that is why we custom-build our estate plans for the individual client situation. At The Bell Law Firm, P.A., we look forward to a chance to assist you with your ongoing estate planning needs. If we can help, give us a call at 913-345-2323.