Who should I choose as my trustee?
Your trust is an important part of your estate plan. Regardless of the type of trust your estate needs, you will be required to choose a trustee. But, what is a trustee and what special considerations should you make when appointing a trustee?
(I am an attorney but I am not your attorney. Nothing in this post creates an attorney-client relationship and should not be construed as legal advice. This article is for educational and informational purposes only. You should consult with your own attorney regarding your specific situations and state law.)
Every type of trust needs a trustee.
Not only can trust language be overwhelming, but there seem to be as many types of trusts as flavors of ice cream. From GRITS, GRATS, and GRUTS, to CLTs and CRTs, the possibilities are endless.
But, regardless of your trust or its type, you will be required to appoint a trustee. In many cases that trustee will be the person who creates the trust (the grantor), but every trust needs at least one successor trustee.
RELATED POST: Why might I need a trust?
Making the decision of who to appoint can be quite a challenge especially if you have multiple children, no children, or are just plain indecisive.
Before, I get into the considerations for choosing your trustee, I want you to know what a trustee is and does.
What is a trustee, and what does a trustee do?
A Trust is merely a bucket that holds assets. The bucket can only hold what it is given, and the trust document itself tells the rules.
Nothing can go into, out of, or through the bucket unless authorized or permitted by the trust. The trustee then is like the enforcer.
The trustee is responsible for moving, removing, or adding assets to the bucket in accordance with the trust terms. The trustee is the muscle –the person in charge.
Therefore, the trustee could have responsibilities that vary from simple communication to beneficiaries and attorneys all the way to complex management of trust assets and tax filings.
Knowing that your trustee needs to not only be able to follow directions but also complete specific tasks, what should you consider when you choose your trustee?
Important considerations for choosing your trustee:
1. You should trust your trustee implicitly.
Above all, you should completely trust your trustee. If you have any misgivings at all about whether your trustee candidate can respect or follow your instructions, then you need to come up with someone else.
If you cannot think of anyone that you trust implicitly, then you should consider appointing a corporate trustee. Corporate trustees are attorneys, fiduciaries, trust companies, accountants or other professionals who handle trusts for a living.
While they might charge more money to do this work than your son or daughter, they have high professional and ethical standards that will bind them to your trust, the IRS, and other legal and professional standards.
2. Your trustee should be financially savvy.
Regardless of the type of trust you create or the requirements of the trust, your trustee should know how to use, protect, and handle money.
For many, bankruptcy is a sure sign that he or she can never serve as a trustee. However, consider other signs such as whether the person is overly leveraged in debt, has never kept a steady job, or can’t retain stable housing or transportation.
Your trustee not only has to report to the trust document but will have to report to the trust beneficiaries, your attorney, and the IRS. The trust is not the trustee’s personal slush fund. He or she might not even be a beneficiary of the trust.
Therefore, regardless of who you choose, your trustee should have basic abilities to hold, handle, manage, protect, and use money.
3. Your trustee should be familiar with your assets and your family.
Many trustees are also charged with collecting your assets and caring for your children or family members.
Therefore, your trustee should be familiar with what you own, what you owe, and the dynamics of your family.
If your trustee is a shrewd business negotiator who is able to stretch a dollar, he might not understand why your minor child needs a tutu for the upcoming ballet recital. Because many trusts have certain provisions where your trustee can exercise discretion over the funds and actions, then your trustee should know and understand what and who matter to you.
4. Consider your trustee’s special skills or abilities.
Likewise, if what matters to you is your family business, the accumulation of farm land, or optimization of tax treatments, then you should consider whether your potential trustee has any special skills or abilities.
If your family business is construction, then having a trustee that understands how to manage and balance upcoming contracts and accounts receivable could be incredibly important.
Similarly, in many states, farm renters must be notified if their rental contracts will not be renewed, if the owner changes, or if they need to update enrollments in farm programs. If your trust is largely comprised of farm or agricultural property, then a trustee who is familiar with farm and agricultural issues might be a better trustee than your accountant.
5. Your trustee should have the ability to manage people and effectively communicate.
The biggest complaint that I receive in my office regarding trustees and personal representatives is lack of communication. Most beneficiaries just want to be heard and to know what is going on.
Therefore, one of the important considerations for choosing a trustee is whether that person can effectively manage people and communicate.
Unlike an estate, a trust has limited mechanisms for compelling information. The trustee is not required to meet certain deadlines, file an inventory, or prepare a final accounting.
Therefore, in some cases, suspicions arise. Children or beneficiaries may begin to believe that the trustee is incompetent, hiding something, or even stealing their money, when he or she is really just waiting on a tax return.
Appoint a trustee who not only understands how to handle money and follow specific instructions but who you can also trust to communicate with your beneficiaries and effectively manage expectations and emotions.
Choosing a Trustee
Many people who are forming a trust are blindsided by the question of who they want to serve as trustee. It’s a question that they have never considered.
When they ask me who to choose, of course I don’t have an answer for their personal situation. Instead, I ask them to consider:
- Who do you trust?,
- Who has proven to be responsible with money?,
- Who is familiar with your family and your assets?,
- Who might have applicable special skills or experience?, and
- Who has effective people and communication skills?
The person who fulfills those questions is likely an extremely good candidate to serve as your trustee.
For important considerations to choose your personal representative or your attorney in fact, check these out.