Other aspects of estate planning are more complex, but choosing a trustee is one of the more difficult decisions to make. People are encouraged to choose several trustees in order of succession, but sometimes choosing any trustees can be difficult in light of family relationships and other factors. Choosing a trustee is a very personal decision, but there are some basic rules of thumb that will help in choosing trustees and successor trustees.
Following are five basic considerations in choosing a trustee:
- Responsibility, Expertise and Common Sense. Choosing a responsible person should be the first consideration. A person does not need to have specific expertise to act as a trustee, but the person you choose must be responsible and have common sense. A person who is not careful with his or her own affairs is not likely to be careful with your affairs. Responsibility means having good judgment, being diligent and having the common sense to know when the expertise of a third party is necessary. Think conservative when considering a trustee, as trustees have a duty to preserve, protect and grow the trust estate while avoiding risks and dangers to the trust estate. If the trustee is given discretion to make decisions, the trustee must have the ability to be objective, follow instructions and consider the best interests of all of the beneficiaries, even if the trustee is also a beneficiary.
- Age and Availability. Sometimes the best people for the role are older, busy or in frail health. That does not mean they should not be considered if they truly are the best candidates, but you should consider the possibility that they may not be around or able to act as trustee when the time comes. Naming several successors is strongly advised, even if the best candidate is young and in good health. Naming a corporate trustee as a final back up or giving the successor trustee(s) or beneficiaries the authority to name a corporate trustee is a good practice.
- Professional Expertise. Professional expertise is not always needed, but it should be considered and is advisable in many circumstances. When estate tax issues are present, a corporate fiduciary should always be considered, either as the trustee or co-trustee with a family member. Family dynamics may suggest the need for a corporate trustee or co-trustee. If there are no good individual candidates, a corporate trustee may be the only good choice. Corporate trustees (usually banks) will charge for their services and may be somewhat cold and impersonal. These are the trade-offs, but objectivity, longevity, expertise, experience and knowledge are what you get with a professional trustee.
- Co-Trustees. Co-trustees have their place, but co-trustees add a layer of complication and administrative burden to the handling of a trust estate. Unless stated otherwise in the trust document, co-trustees must act in concert (together) to approve anything and to take any action. There are some instances in which co-trustees shine. Naming a trusted family member as co-trustee with a corporate fiduciary may be good combination of personal decision-making with professional investment and other expertise. Naming two or more family members can spread out the burden and responsibility. Co-trustees can ensure that decisions will be made with joint input. On the other hand, co-trustees who do not get along can lead to fighting and deadlock. The decision whether to name co-trustees should be made with the goal of avoiding conflicts and easing the administrative burden. Naming co-trustees should be done with a good understanding of the skills and abilities, personalities and relationships and likely advantages and disadvantages of trustees acting together. Naming co-trustees when it is does not make good sense can make the estate administration more cumbersome than it needs to be.
- Re-evaluation. No one has a crystal ball (one that works anyway). Decisions must be made in the present. Even with a good understanding of the past and the best projection of the future that can be made by at the time, things change. Relationships change. Circumstances change. Sometimes laws change. Estate planning should be revisited from time to time, including the choices that have been made for trustees. When major changes take place, such as a divorce, a death in the family, a new marriage, children becoming adults, etc., you should reconsider your estate planning and revisit the choice of trustees.
There is no magic formula or single, tried and true equation, for choosing a trustee and successor trustees. Every person and every family has their own unique circumstances and relationships. There may be no perfect choice, and for some people, the choices may be limited and less than desirable.
The lack of good choices for trustee is often a reason that people put off doing estate planning. Putting off doing your estate planning, however, is abdicating your choice to someone else. Someone will need to step forward and take the helm when you are gone if you do not choose who will handle your estate yourself. You might as well take control and make the best choices that you can make in light of your circumstances and your own preferences, goals and concerns. Using the checklist in this article is a good place to start.
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