You have worked hard to obtain and protect assets such as your house, car, business, etc…In order to properly protect your assets and to provide for the most important people in your life, you may be advised to put some or all of your assets into a trust.
If you are deciding on establishing a trust, you will need to appoint someone to make sure that the trust is administered in accordance with your wishes. A trustee is a person who takes on the position and responsibilities of managing the trust’s assets. The responsibilities and regulations which the trustee must follow are outlined in the trust. The creator of the trust can be a trustee and even one of the trust's beneficiaries. However, trust creators may also appoint another person or even an institution as their trustee.
After the death or incapacity of the trust’s creator, a person or institution is named as the successor trustee in order to manage the trust’s assets. The person or entity listed in a trust as a successor trustee should also be carefully appointed because an unreliable trustee can both mismanage and waste assets.
Because trustees have significant powers, a risk exists where an irresponsible trustee could end up harming a beneficiary. Selecting a trustee is a critical aspect of estate planning and many people tend to appoint a trustee without sufficient planning or thought. This article lists some important qualities to look for when selecting a trustee as well as some guidance on who to select as the right trustee.
Important Qualities to Look For When Selecting a Trustee:
1.) The Capability to Perform the Job
In order to successfully administer and manage a trust, trustees have to be capable of performing various tasks. Trustees must have an understanding of both vocabulary related to trusts as well as the applicable laws. They should know how to successfully manage all types of assets (physical or intangible) as well as be able to diplomatically work with the beneficiaries. A trustee does not need to have experience in areas like finance or trust management, however, whoever is appointed as trustee should be financially responsible and have some dispute resolution skills. The person appointed as trustee should also be capable of making ethical decisions which means acting in the best interest of the trust creator and beneficiaries.
2.) Remain Impartial
A trustee has a fiduciary duty to the trust’s beneficiary, meaning that the trustee must act in the best interests of the beneficiaries in mind and not favor one beneficiary over another or engage in self-serving actions. Many older parents decide to appoint their children as trustees. Although appointing your child to be a trustee can be a good idea, it can also cause conflict within the family if the trustee is can not act impartially.
3.) Willing to Act as a Trustee
Unfortunately, being a trustee is an often unacknowledged and thankless position which is why it is important to make sure to appoint someone who would want to perform the necessary tasks to administer your estate. If a trustee ends up feeling over-burned and loses interest in performing the tasks necessary for trust administration, the chance of your trust failing and your wishes being unmet will increase.
Should My Trustee Be My Spouse Or Child?
You know the strengths and weaknesses of your family members which puts you in the best position to decide if your spouse or your child can successfully carry out a trustee’s responsibilities. Under state law, there are many responsibilities of a trustee. These include, but are not limited to, remaining impartial between the interests of the current and future beneficiaries, properly accounting for all beneficiaries, and prudently investing trust funds.
Questions to consider:
- Can your trustee distinguish their personal feelings and interests from those of the beneficiaries?
- Can your trustee analyze investments?
- Will there be a temptation for your trustee to take risks hoping for a hefty return at the expense of the other beneficiaries?
- What if your spouse re-marries?
- Will all parties be treated impartially if, for example, your children are not your spouse’s children?
- Will a child who is a trustee be able to exercise good judgment if a sibling is a beneficiary or could tension develop between them?
- Can your sons-in-law and daughters-in-law and their children work successfully together?
- Will a child who is balancing their family and career have adequate time to devote to serving as a trustee?
Should My Trustee Be An Attorney, Accountant, Or Other Trusted Advisor?
Attorneys, accountants, and financial advisers sometimes have a special and trusted relationship with their clients. Those who emphasize impartiality may look to their attorney, accountant, or other advisors. If you have an extended relationship with your attorney, accountant, or other advisors then it does not hurt to consider them a possible option to be a trustee. However, just because an accountant or other advisers may understand the nature of your business or your financial goals, they may not fully understand the scope of fiduciary duty or the inherent risks and responsibilities of being a trustee.
Questions to consider:
- Does your professional adviser know and understand the dynamics of your family?
- What experience do they have as a trustee?
- How long have you been a client with the advisor?
- Do your immediate family members know of and trust the advisor?
Should My Trustee Be A Bank Or Trust Company?
Banks and trust companies provide professional fiduciary services so they can act independently and impartially. Corporate trustees have procedures and systems that will ensure your properties are being managed and funds are being invested in a fair and consistent manner. Choosing a professional fiduciary could reduce conflicts between family members while receiving experienced and professional investment and administrative management. All fiduciaries are held to a very high standard especially corporate fiduciaries because their business is to provide fiduciary services.
Questions to consider:
- How much of the trust assets will be spent on fees from a trust company and be unavailable to my beneficiaries?
- Do the increased investment returns provide value for the fees charged?
- Will the bank or trust company understand my family and their needs?
- What can I expect from the administrator making decisions that directly affect my family and meeting the goals of my trust?
Advantages To Choosing More Than One Trustee
You may find it beneficial to choose one or multiple individuals to serve as a trustee along with a corporate trustee. It can be helpful to have more than one trustee in order to balance all of the responsibilities such as recordkeeping, investments, and other trustee duties.
A properly drafted trust agreement can concisely outline the duties of the various trustees, such as the retention of specific investments, the delegation of particular duties, or even the power to remove a trustee. One of the co-trustees could have a particular understanding of a beneficiary’s needs and help the other trustees and/or the corporate trustee in making discretionary decisions.
Choosing trustees for your trust can take time, but it doesn’t have to be difficult. Your ultimate decision should be well reasoned. You are the best one to recognize the responsibilities of managing your wealth and assets. You are also best able to understand the needs and capabilities of those closest to you. It is beneficial to consider the people who, when working together, have the knowledge, experience, and compassion to best carry out your remaining wishes.
If you need consulting on setting up a trust and appointing a trustee, please contact the Law Office of Inna Fershteyn at (718)-333-2395.