Cummings & Lockwood Estate Planning FAQs
What Factors to Consider When Selecting a Trustee
Choosing a Trustee can be a challenging decision, especially since Grantors commonly want a family member to be the Trustee. For a Revocable Trust, the Grantor will typically serve as a Trustee during his or her lifetime, either alone or together with the Grantor’s spouse, another family member, or an Independent Trustee. After the Grantor’s death, the Grantor’s surviving spouse, if any, or one or more children of the Grantor are a common appointment. It is important that that the successor Trustee named to act upon the Grantor’s death is able to work with the Executor of the Grantor’s estate, as those two persons will have to work closely together during the estate administration. After the division of the trust assets for the beneficiaries, if there are ongoing trusts, many more factors enter into the equation. For an Irrevocable Insurance Trust, the Grantor cannot serve as Trustee, and an Independent Trustee may be the best option.
The purpose of a trust can help to narrow down who should serve as Trustee. If the trust is a spendthrift trust, the beneficiary should not be a Trustee, but asking a family member of the beneficiary to be a Trustee, especially a sibling, may cause additional problems. If the trust is primarily for asset protection, the beneficiary may serve as Trustee, but in some instances, for maximum protection, it is preferable for an Independent person or Corporate Trustee to serve as a Trustee or co-Trustee with the beneficiary.
The nature and value of the assets also has an impact on the selection of a Trustee. If a trust consists of a residence and cash, the beneficiary may be able to manage the assets without any assistance. If the trust consists of a closely held business, one or more family members who have been involved in running the business for multiple years may be the best choice to serve as Trustee, either alone or together with the beneficiary. If the trust consists of many complicated investments, real property held in limited liability companies, and requires sophisticated tax decisions, the beneficiary may prefer to not be a Trustee at all, and a professional Trustee, such as a bank, trust company, or attorney, is the best choice to serve as Trustee.
Choosing a family member or a friend to serve as Trustee may put additional strain on the relationship between the beneficiary and the Trustee. The beneficiary and the Trustee will have to work together and be able to get along with each other, so if there are any questions about the ability to do that, it may be better to appoint an unrelated person as the Trustee.
A Trustee will need an attention to detail, time and organizational skills, interpersonal skills to communicate well with the beneficiaries, honesty and integrity to safeguard the trust assets, expertise to invest and manage the trust assets, and the knowledge on how to handle tax issues, or, the Trustee will need to be able to recognize the need for these skills and seek out help from professionals. The Trustee does not have to be an expert in every area, but the Trustee should have a sufficient enough grasp of the issues to recognize when help is needed and to be able to hire the appropriate professionals.