You have begun the task of creating an estate plan. You have selected beneficiaries for your assets, but now comes the naming of a trustee. What should you look for in a trustee? The trustee is tasked with caring for the assets in the trust for one or more beneficiaries. It is the trustee who handles all the necessary paperwork and sees that tax returns are filed.
FedWeek’s recent article entitled “Your Options for Selecting a Trustee” explains that probate and trust law creates a fiduciary responsibility, so the trustee is accountable to the trust beneficiaries and must serve the beneficiaries’ best interests. Here are the types of trustee one can select:
Individual trustee: this can be a friend or relative who’s probably familiar with everyone involved and may well make the decisions desired by you, the trust creator. If you decide to go with an individual, make sure you choose someone who is trustworthy. It’s the most important qualification of a trustee. Ask yourself if this a is person who I can trust unconditionally to carry out my wishes when I’m gone. You also need to be certain that your trustee is financially responsible. The reason is that a trustee’s duties will include handling your financial accounts and being responsible for your investments. Therefore, finding a person who’s proven themselves to be financially responsible is critical. A trustee needs to deal with financial accounts, as well as the responsibility of accounting to the trust beneficiaries regarding all assets, income and expenses of a trust. Therefore, basic record keeping skills are required. Finally, you need someone who’s available. Choose a trustee who’s likely to be available when the need for his or her services arises. Age, health, job demands and location are all things to take into account, when selecting a trustee.
Institutional trustee: a local bank or trust company might have the resources to manage your assets. They also will have the staying power to handle long-term trusts.
You can also set up a combination of the two. You could designate an institution and an individual as co-trustees. That way, you may get financial expertise and personal attention. If discretionary decisions are permitted, you can leave instructions that both co-trustees must agree.
You can also add “trustee removal” powers into the terms of the trust to reduce the risk that a trustee will prove to be unsatisfactory. A majority vote of adult income beneficiaries may be enough to get a new trustee. That person must be an unrelated person or institution.
When you name an individual as trustee or co-trustee, again make certain that he or she is qualified to do the job, then get his or her consent.
When you have found what you were looking for in a trustee, you should also designate a successor trustee. Just in case your first choice is unable or unwilling to serve.
If you would like to learn more about trusts and how they work, please visit our previous posts.
Reference: FedWeek (Aug. 13, 2020) “Your Options for Selecting a Trustee”