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Every trust needs a trustee. For most revocable trusts, you (or you and your spouse jointly) will serve as the trustee during lifetime. However, choosing a successor trustee can be a difficult decision. This article will discuss some of the main factors to consider in choosing a successor trustee.

Carrying Out Your Wishes

One of the main roles of a trustee is ensuring that your wishes are put into effect. Since trustees may often face opposition from family or friends wanting to receive or distribute assets on their own terms, a trustee must be bold and willing to carry out your wishes regardless of external pressures. 

Discretion and Judgment

When leaving assets to children or otherwise young or needy beneficiaries, a properly-drafted trust will normally leave some discretion to the trustee regarding distributions for healthcare costs, educational expenses, and daily maintenance and support. In this regard, you are truly putting your loved ones’ futures in the hands of the trustee. Make sure that your trustee has the tact, discretion, and judgment skills necessary to provide for your loved ones without squandering their finances or spoiling them.

Financial Savvy

Unless waived in the trust document, trustees have a duty to manage trusts funds as a “prudent investor” would. That simply means that the trustee has a duty to invest trust money in appropriate investments with a reasonable level of diversification. Choose a trustee that will appropriately invest undistributed trust funds in a way that facilitates appropriate growth.

Paid vs. Unpaid

Finally, your trustee’s compensation can significantly complicate your plan. If you want a professional trustee, you will need to provide compensation. However, compensation for family or friend trustees may be waived, so long as the trustee is willing to work pro bono. Few complications arise when a family member or friend serves as trustee without payment, but compensation for a friend or family member can complicate the administration of the trust. 

One of these complications is the ‘reasonableness’ of the fee. If the trustee normally earns $100/hour in their day job, trust administration billed at the same rate may cause an undue burden on the trust. On the other hand, if the trustee normally earns $10/hour but charges the trust $40/hour for trust administration, then there may be an inappropriate incentive to complicate the administration.

The second major complication with paid trustees is the family dynamic. It’s sad to see family relationships strained because trust beneficiaries interpret a family member’s trust administration compensation as self-serving. For this reason, I generally recommend family members serve as trustees without compensation, which brings us to our final factor to consider:

Family, Friend, or Commercial Trustee?

In general, family members and friends are perfect inexpensive options for trustees, so long as they match all of the other criteria discussed above. However, certain situations call for commercial trustees. For example, special needs trusts (trusts ensuring supplemental care for persons on government assistance) have special administrative requirements that may be too much for a non-professional to adequately maintain. Other family dynamics simply would not allow for a family or friend to serve as a trustee. In these situations, an institutional trustee (bank or financial services company) or a private professional trustee may be a better option than a family member. 

In conclusion, these 5 factors are some of the most important ones to consider in choosing a successor trustee. When in doubt, discuss your options with your estate planning counsel and consider their suggestions based on your situation and their expertise.

 


This article is informational and does not contain legal advice. If you would like to ensure your property is distributed according to your wishes, please seek advice from an estate planning professional.