Trust Basics
Selecting a trustee is one of the most critical decisions you'll make when creating a trust. The trustee is the person responsible for managing and distributing the trust’s assets according to your wishes, both during your lifetime (if it’s a revocable living trust) and after you pass away. You'll need to choose a primary trustee and at least one successor trustee who can take over if the primary trustee is unable or unwilling to serve. In some cases, you may also consider appointing co-trustees.
Let’s walk through the key characteristics and considerations to help you decide who should take on this important role.
Characteristics of an Ideal Trustee
Financial Responsibility
The trustee will be responsible for managing the assets in the trust. This requires financial literacy, the ability to make sound decisions, and attention to detail when it comes to paying bills, filing taxes, and handling other financial obligations.
Why it matters: A financially responsible trustee will ensure that the assets are well-managed and can provide long-term support for your beneficiaries.
Business Literacy
In many cases, a trustee may need to make decisions about running a family business or investments. Having someone with strong business acumen can ensure that the trust's assets are not only preserved but also grown in a way that benefits future generations.
Why it matters: Someone who understands business operations and investment strategies can make informed decisions that safeguard your estate.
Trustworthiness and Integrity
Your trustee should be someone you trust completely to act in the best interest of the beneficiaries and carry out your wishes. This person should be ethical, transparent, and reliable.
Why it matters: The trustee holds significant power over your estate, and without trust, the process can become complicated or lead to disputes.
Personal Connection and Care
Ideally, your trustee should care about you and your family, ensuring they have the beneficiaries’ best interests at heart. They should be empathetic and capable of making fair, emotionally charged decisions, especially during difficult times.
Why it matters: A trustee who cares about your legacy will honor your wishes, even when the decisions are tough.
Availability and Willingness
Being a trustee is a time-consuming role, especially if the trust is complex or has multiple beneficiaries. The person you select should have the time and energy to dedicate to the role and be willing to serve when needed.
Why it matters: A trustee who lacks the time or motivation to manage the trust properly could delay distributions or mismanage assets.
Pros and Cons of Different Trustee Options
1. Family Member as Trustee
Pros:
Likely knows your wishes and family dynamics well.
Often trusted to act in the best interest of beneficiaries.
Typically does not charge a fee to manage the trust.
Cons:
May lack the financial or business expertise required.
Could become emotionally involved or biased, potentially leading to conflict between beneficiaries.
The role can be overwhelming for someone unfamiliar with estate management.
2. Professional Trustee (e.g., Lawyer, Financial Advisor, Corporate Trustee)
Pros:
Has financial and legal expertise to manage the trust efficiently.
Provides a neutral, objective approach, avoiding family conflicts.
Often has experience dealing with complex assets, taxes, and long-term investments.
Cons:
Charges fees for their services, which can reduce the overall value of the trust.
May lack the personal connection to you and your beneficiaries, leading to more rigid or less personalized decision-making.
3. Co-Trustees (Two or More Trustees Working Together)
Pros:
Balances expertise and personal knowledge by pairing a family member with a professional.
Provides checks and balances, reducing the likelihood of mismanagement or bias.
Cons:
Disagreements between co-trustees could lead to delays or conflicts in decision-making.
Managing multiple trustees can complicate the administration process.
Choosing a Successor Trustee
It’s also essential to select a successor trustee—someone who will take over if the primary trustee becomes incapacitated, passes away, or is otherwise unable to fulfill their role. The successor trustee should have similar qualities as the primary trustee and be able to step into the role at a moment’s notice. Many people choose a professional trustee or trusted family member for this role.
When selecting your trustee & Successor Trustee, consider the following:
Do they have the financial and business expertise to manage your assets effectively?
Can they remain objective and handle the role without becoming emotionally involved?
Do they have enough time and willingness to take on the responsibility?
Will they ensure that your wishes are followed and that your beneficiaries are cared for?
WILL vs. TRUST - HOW ARE THEY DIFFERENT?
A Will and a Trust serve different purposes in estate planning. A Trust is primarily used to manage and distribute your assets during your life and after your death, but it does not designate a guardian for your minor children. That role is reserved for a Will, which allows you to specify who will take care of your children if something happens to you. While a Trust helps avoid probate and manage financial matters, the Will ensures that your children’s physical and emotional well-being are legally addressed by naming a caretaker. It’s essential to have both documents for comprehensive planning.
Scenario: Choosing Your Trustee
Imagine this: You have a close friend or family member—let’s call him David—who seems like the ideal candidate to be your trustee. David is dependable, organized, and has been by your side through many significant moments in life. He’s financially savvy, works in business, and has handled his own finances well. Given your trust in him and his financial background, it seems like an obvious choice to appoint him as the trustee of your estate.
However, there’s an important detail you’ve noticed over the years: David struggles with decisiveness under pressure. When faced with tough or emotional decisions, David tends to become overwhelmed, often procrastinating or second-guessing his choices. While this hasn’t affected your personal relationship much, you realize that this trait could have serious consequences when it comes to managing your trust.
As trustee, David would need to make timely decisions about investments, distributions to beneficiaries, and the sale or retention of assets. He might face conflicts or emotional tensions between your beneficiaries and would need to stay objective under stress. If he hesitates or delays these decisions, it could cause financial loss for your trust or create unnecessary tension among your heirs.
Moreover, you remember a time when David was involved in a family dispute over an inheritance. Instead of taking a stand or navigating the disagreement, he remained neutral to avoid conflict, which ultimately escalated tensions between other family members. As a trustee, he will need to have the confidence to enforce your wishes and make potentially difficult calls—even if it means standing up to family or loved ones. His hesitation in dealing with these types of issues in the past raises concerns about his ability to navigate similar situations as your trustee.
Reflection
While David has many qualities that make him a strong candidate, this scenario highlights the importance of thinking beyond basic financial competence when selecting a trustee. You should consider whether the person has the emotional fortitude to manage complex situations, handle potential family disagreements, and make decisions under pressure.
Ask yourself:
Does the person you’re considering as your trustee have a history of decisiveness and objectivity, especially under stress?
Could their emotional connection to you or your beneficiaries affect their ability to stay impartial when making tough decisions?
Have they demonstrated the ability to mediate conflicts, or would they avoid them to keep the peace?
These questions can help you avoid potential pitfalls and choose a trustee who not only understands your wishes but can execute them confidently and effectively.