A former boss of mine used to say choosing a trustee comes down to 3 factors: talent, temperament, and time. There are a variety of reasons to set up a trust; so each factor’s importance will depend on the trust’s purpose. For some people, naming a family member will be the best option. Others might benefit from a large corporate trust company. Still others may want something in between, perhaps an independent fiduciary or an attorney or CPA. Before making the trustee decision, consider the 3 factors.
How much talent does a trustee need? Talent may be necessary, or just nice to have, in 4 areas: legal, accounting, taxes, and/or investments. For example, if the beneficiaries are apt to question the trustee’s decisions, legal talent would be especially beneficial. When it comes to accounting talent, some trustees must provide an annual report to beneficiaries showing all sources of income, expenditures, and (here’s where many get tripped up), expenses paid from income or principal. Trustees may be accountable to and liable for decisions made on behalf of all beneficiaries, both current and future. Therefore, if a trustee is managing a trust for a current beneficiary (say a widowed spouse), they might also have to look out for future beneficiaries (say, children). That can feel like a delicate balancing act when it comes to tax and investment strategies. If the trustee does not possess talent in one or more of these areas, then which talent(s) may need to be hired from outside advisors? How will the trustee decide how to make those hires?
Does the trustee have the temperament? Honesty, objectivity, and maturity are three qualities that are a good litmus test of a trustee’s capacity to handle the responsibilities. If a trustee has other beneficiaries, do those beneficiaries know and trust the trustee already? Can the trustee be completely impartial among all beneficiaries? How adept is the trustee at managing emotional reactions, both their own and others’, when it comes down to decisions about money?
What kind of time is required and does the trustee have it? What if something happens to the trustee? Is there a backup team available? How long will the trustee most likely be around?
More Than One Trustee
These 3 factors need to be considered for all trustees. Some people choose to name co-trustees. Co-trustees can be family members (say, all siblings); or a family member(s) and a professional or corporate trustee. Co-trustees can provide checks and balances on each other, but can make changes and some decisions burdensome. In a worst case scenario, co-trustees may have to go to mediation or court to resolve their differences. Another strategy is to name a “trust protector,” who does not have the powers of a trustee, but has oversight to fire and hire trustees.
Consult a Knowledgeable Attorney
The good news is that trusts are very flexible instruments that can be custom designed to reflect your wishes. The bad news is that flexibility can lead to a confusing array of choices. To sort through it all, it’s best to have a thorough discussion with your lawyer. Find one who is board-certified, or practices full-time, in wills, trusts and estates.
If you would like to learn more about the responsibilities of a trustee, start with the Florida Bar’s consumer information page on revocable trusts: https://www.floridabar.org/