Talent, temperament and time: three criteria for choosing a trustee.
When it comes to more advanced estate planning, many people choose to go the route of forming a trust. Reasons for doing so can be as simple as avoiding probate in another state, or as complex as managing family dynamics in multi-generational blended families. (For top 10 reasons you might want a trust, see: You Might Want a Trust If…)
Trusts should be formed with the assistance of a board-certified estate planning attorney. At some point the attorney will ask, “And after you, who do you want to be trustee? Successor trustee?” Often the first person who pops into mind is a relative, especially if they wouldn’t charge anything. But acting as trustee can be a serious duty and responsibility (read: headache, in some instances) to ask someone to assume.
For some people, naming a family member may 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.
When choosing a trustee, it’s best to include at least three criteria: talent, temperament, and time. The relative importance of each will depend on the trust’s purpose. As you review them, keep in mind, why is the trust being established in the first place?
How much talent does a trustee need, and what kind of talent? Talent in a particular area may be a necessity, or just nice to have. Talent needs to be considered in four main areas: legal, accounting, taxes, and investments.
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. For example, if the trust beneficiaries are apt to question the trustee’s decisions, legal talent would be not only beneficial, but possibly necessary.
In some states, trustees are required to 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. If the trust is or becomes irrevocable, it must file its own tax return. Trusts are subject to an entirely different set of tax rules than individuals. Accounting talent is critical for that.
Further, once the trust is established and funded, will it be around long enough that money must be invested? How will it be invested with the best interests of the beneficiaries in mind? Investment management talent might be needed at that point.
A family member lacking one or more talents can still make a good trustee, if there is a plan to hire out the talent. For example if all four areas will be critical, it might be worthwhile to hire a corporate trust company as co-trustee with the family member and give the family member the ability to make a change if needed.
Next, though, ask whether they have the temperament and the time.
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 trust has several 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 to decisions about money?
What kind of time is required and does the trustee have it? Meetings and communications with lawyers, accountants, investment managers, bankers and/or brokers can take time. Reviewing statements, gathering data for tax returns, compiling or reviewing reports for all the parties, and answering questions from beneficiaries also may be required. Depending upon the size and complexity of the trust, acting as trustee could become a full-time job.
More Than One Trustee
Talent, temperament and time are three factors that need to be considered for all trustees. But also, what if something happens to the trustee? How long will the trustee most likely be around?
Trusts nearly always provide for successor trustees and some name co-trustees and successor co-trustees. Co-trustees can be family members (say, all siblings); or a family member and a corporate trustee or professional like an attorney. Co-trustees can provide checks and balances on each other, but that can also make changes and 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. Consider whether adding decisionmakers to the trust document would help. Remember to keep in mind the reason the trust is being created in the first place.
Consult a Knowledgeable Attorney
The good news is that most 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 a lawyer. Find one who is board-certified or practices full-time in wills, trusts and estates. Check out peer ratings for attorneys on www.martindale.com.
See this link for more about the responsibilities of a trustee, start with the Florida Bar’s consumer information page on revocable trusts: https://www.floridabar.org/
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