Who do you trust? When implementing estate planning you select individuals to take care of your assets, your person, and your minor children in the event your not able to do so. Often these may be different people.
Until you go through the process of having to step in and take over the financial and personal responsibility of another, the process is difficult to appreciate. The role of handling someone’s funds goes by many names depending on the facts and circumstances of the case. Some of the roles are called guardian, conservator, agent, executor, administrator or trustee. For this article, we will focus on trustee but remember these responsibilities will apply to any of the roles listed.
The process of selecting a trustee or trustees begins with an assessment of the role. Here are some guidelines and rules of thumb that may help you select a fiduciary:
Trustworthy. Perhaps the single most important criteria of selecting a trustee is that the person be trustworthy and diligent. You are often trusting someone with assets you have accumulated over a lifetime, and therefore it is important to pick the right individual or institution.
Length of a trust. The longer the trust the more complex it is to administer. Most living trusts are will substitutes. They are devices to avoid probate. In this case, the role the trustee is limited to changing title from the name of the trust to the name of the beneficiaries. Since the process is more administrative than the exercise of judgment, the trustee’s role will be less complex than in other situations where the trust will last several years.
Number of Beneficiaries. The more beneficiaries there are in a trust, the more complex to administer. The rational being that the trustee owes a duty of impartiality to all the beneficiaries. This means that the trustee may not favor any particular beneficiary absent language to the contrary. Since these decisions become more nuanced, it is better to get an experienced trustee to assist.
Size and Complexity of the Estate. Professional trustees cost money. In larger estates, especially ones that become more complicated, a professional trustee may be the best option. The more assets to manage and the larger the estate, the greater the utility of having an institutional trustee at the wheel making sure accounting, tax as well as substantive issues are being addressed. One compromise may be to have a family member act as trustee with a professional trustee.
Relationship between Trustee and Beneficiary. Trustees frequently have a great deal of flexibility between selecting among beneficiaries. Their duty is to follow the trust terms, but it is common for a trust to allow “equal or unequal distributions” to a group of beneficiaries such as minor children. There duty may also include the right on whether or not to make a distribution as well as the amount of the distribution. Conflicts often arise where the beneficiary believes they should be entitled to more than they are getting. This is especially true where the trustee believes they are being ruled over by an equal (frequently a sibling) or a perceived subordinate (consider trust officer).
The choices you have in drafting a trust and selecting a trustee turn on the issues raised above. There are also several drafting techniques that can help the trustee. Some examples are using special trustees for unique assets such as a family business. There is the role of Trust Protector which is including someone else to help in a variety of ways including in the event of conflict, removal of trustee, and trust oversight. Think of it like a private judge whose power supersedes that of the trustee in certain instances.
In the end, the consideration of who will act as trustee is one of the most important issues that need to be addressed when drafting a trust. Careful consideration of family members as well as institutional trustees should be made. It is decisions such as these were working with an experienced Wills and Trusts attorney can truly pay dividends in the long run.