Choosing a Trustee for Your Trust

Trusts are a popular estate planning tool, and for good reason: they help your estate bypass the probate process, they are flexible, they offer you control, and they can serve a variety of specific needs, such as credit protection, tax planning, and providing for a loved one with special needs. But in order to achieve your estate planning goals, choosing a trustee who will do what you need them to is important.

If you are familiar with trusts, you know that they involve three parties: the grantor (also called settlor or trustmaker), who creates and funds the trust; the trustee, who manages the trust and makes distributions; and the beneficiaries, who benefit from the trust. With many living trusts, the grantor also serves as trustee and beneficiary during their lifetime; after their death or incapacity, a successor trustee takes over. With other types of trusts, someone other than the grantor serves as a trustee from the beginning. 

Either way, when you are choosing a trustee for a trust you have created, it is critical to select someone with the will and ability to handle the job. Here is some guidance on how to choose a trustee. 

How Do You Choose a Trustee?

In most cases, any legal adult who has the capacity to act can serve as the trustee of a trust. Financial institutions, corporate entities, and even some government agencies can serve as trustees. However, most people do choose an individual who is known to them, often a family member or friend. How do you decide whom to choose as your trustee or successor trustee? There are several factors you should consider.

Ability

Since one of the primary duties of a trustee is to manage the assets of a trust, a trustee should have sound basic financial knowledge. That doesn’t mean that your trustee has to be a CPA or investment professional, but they should have enough background to understand the assets in the trust, be able to hire a competent investment advisor, and understand and evaluate the advisor’s recommendations.

You don’t need to grill your prospective trustee to get an idea of whether they are up to the task. If you have observed that they have a lot of debt, make risky or impulsive investments, or struggle to manage their own money, consider someone else.  

Trustworthiness

A trustee is a fiduciary, obligated to act in the best interest of someone other than themselves—in this case, the beneficiaries of the trust. When choosing a trustee, you want someone whose ethics are above reproach, someone you can count on to do the right thing for your beneficiaries. 

You will want to avoid choosing a trustee who may have a conflict of interest, such as a business whose financial interests are in opposition to those of the trust. And, it should go without saying that your chosen trustee should be someone you can count on not to engage in self-dealing, such as taking personal loans from the trust or buying or selling assets to the trust at a price that benefits the trustee.

Time

Managing a trust isn’t an honorary position. To properly carry out their duties, the trustee must have sufficient time to devote to this role. A trustee may need to take on many time- and labor-intensive tasks, including:

• Having personal property belonging to the trust appraised and insured
• Maintaining real property belonging to the trust
• Conducting estate sales
• Selling real estate
• Dealing with creditors of the trust and paying trust debts
• Collecting debts and income owed to the trust
• Keeping records of transactions involving the trust and trust account activity
• Communicating with beneficiaries, including making distributions

In other words, serving as a trustee is not a casual undertaking. Even if your preferred trustee is otherwise qualified, you may not want to choose them if they don’t have the necessary time to do the job properly. 

Judgment

Trustees don’t just crunch numbers; they also deal with people, including the beneficiaries of the trust. One of the trustee’s duties is to make distributions to the beneficiaries. Sometimes those distributions are spelled out in the trust, like giving a certain percentage of trust income to beneficiaries each year. Other times, distributions are made at the trustee’s discretion. Accordingly, you want a trustee who will make distributions that are truly in the beneficiaries’ best interest, and for that you need someone with sound judgment who is not easily swayed or manipulated. 

Should You Choose a Professional Trustee? 

After reading the factors above, you may wonder if any of the people close to you will be equipped to serve as your trustee. If not, don’t panic; there are other options, including professional or corporate trustees. 

One advantage of working with a professional trustee is that they typically have the experience and expertise to manage your trust effectively, and without personal ties to the beneficiaries,  a professional trustee is unlikely to get embroiled in family conflicts. That said, a professional or corporate trustee’s fees are likely to be higher than those of a family member or friend serving as trustee. For many people, the higher fees are worth it for the peace of mind that comes with knowing a professional is managing their hard-earned assets.

A professional trustee may be the best option for situations in which there are significant or complex assets, or the likelihood of conflict between family members. One of the best ways to get recommendations for a professional trustee is to speak with your estate planning attorney. If you decide not to use a professional, you may want to connect your chosen trustee with your attorney so that your attorney can provide the trustee with needed guidance regarding trust management and administration.

To learn more about choosing a trustee for a trust, or to incorporate a trust into your estate plan, contact Estate Planning & Elder Law Services to schedule a consultation.