Not surprisingly, choosing a trustee is one of the most important aspects of setting up a trust. It is not uncommon for trustees to be unprepared, overwhelmed, disinterested, or otherwise unsuited for the job they have been given.
The job of a trustee, and therefore the best choice of trustee, varies depending on the type of trust you establish. If you have a living trust to primarily avoid probate and distribute property to beneficiaries after your death, the tasks and timeframe are very different compared to a trust designed to manage assets and pay distributions for years after your death.
Even so, there are some common characteristics that any good trustee should possess.
- Personal Traits – Is your trustee above reproach? Anyone whom you would place in charge of your finances needs to be honest with consistently high standards of conduct. They have a fiduciary responsibility to act in the best interest of the trust and the beneficiaries.
In general, people who are well organized and detail-oriented have less difficulty with the task of trustee. It also helps if they are personable, since they will need to interact with beneficiaries, and if they are financially secure separately from the trust.
- Objectivity – Is your trustee fair? The trustee may run into competing interests within the beneficiaries and must act as an impartial judge to resolve disputes. An even temperament is a bonus.
- Capability – Is your trustee generally levelheaded and not overwhelmed by business, legal, and tax issues? Your trustee does not have to understand all of the intricacies of your trust arrangement, but it is preferable that they have at least a broad understanding of the issues and potential costs.
Mainly, trustees need to know when to seek professional assistance. They may have to maintain accounts, manage investments asset, file taxes, and send out distributions, among other tasks. Expertise is great, but common sense is mandatory.
- Time – Does your trustee have the time to oversee your trust? The most technically qualified person may not be the best choice if they are so busy with their own affairs that they cannot pay attention to yours.
- Goals and Objectives – Are you confident that your trustee understands the goals and objectives of your particular trust? Equally important, are you confident that your trustee will carry out those objectives even if they do not agree with them?
- Longevity – Is the trustee young enough and sufficiently healthy? Obviously, your trustee should outlive you. An older sibling may be well qualified but a poor choice. It is wise to have a successor trustee or co-trustee in any case.
You are not limited to one trustee; co-trustees are common – and for almost all living trusts, the creator and his or her spouse are co-trustees.
There are three typical trustee choices:
- Family Members – Family members may know your wishes but have few other qualifications. Be especially careful of family dynamics when appointing a trustee. Naming siblings as co-trustees can split a family.
- Professional Trustees – Choosing a reputable lawyer, bank, or trust company should remove concerns about capability. On the down side, fees are significant – estates smaller than $300,000-$500,000 and with no unusual aspects may be better served by family members.
Corporate trustees give neutral advice, removing family biases – but a professional trustee may not be as familiar with your wishes.
- Co-Trustees – By naming a family member and a professional as co-trustees, you can get the best of both worlds – one to focus on family aspects and another to focus on the mechanics of trust management. You can name two family members co-trustees, but again, beware of family dynamics.
In the end, appointing a trustee or trustees is a business decision, and you must treat it like one. Don’t appoint any family member that you would not go into business with as your trustee – and if you have to, consider going with co-trustees.