Many people understand that a living trust helps them avoid probate. This is true, to the extent that the trust is funded at the time of death. A trust can be a wonderful estate planning tool for many reasons, including the ability to avoid the time, expense, and publicity of probate. It can also be wonderful tool to support the needs of beneficiaries who are too young to receive an inheritance all at once, who may have special needs, or who may need financial oversight and guidance.
A trust is created by a settlor, who signs a trust agreement appointing a trustee. Like a will, a trust names beneficiaries. It is the duty of the trustee to manage trust assets for the benefit of trust beneficiaries. Duties and responsibilities of the trustee, including the terms of trust management, are set forth by the law of the governing jurisdiction and by the terms of the trust agreement.
It is critical that the settlor select a suitable trustee. Typically, the initial trustee is the settlor. The thorniest issues arise when the settlor of the trust dies. A trust may continue in force for generations after the settlor's death. Selecting a suitable trustee or trustees generally depends upon the nature of the bequests contained in the trust, the potential conflicts amongst beneficiaries of the trust, the complexity of the trust, and the duration of the trust.
Most often, a family member has the skill set to be a suitable trustee. I counsel settlors that the most important skills for a trustee to possess are decent organizational skills, a general understanding of finance, an ability to treat beneficiaries fairly, and an understanding of the settlor's intentions. Frequently, a surviving spouse is a suitable person to serve as trustee during his or her lifetime. If a settlor wants his or her surviving spouse to serve as trustee, but the spouse is lacking some necessary skills, it may be wise to select an additional family member to serve as a co-trustee. If there is an inherent conflict between the interests of a surviving spouse and the interests of the settlor's children, particularly if the settlor's children are the product of an earlier marriage, it may be wise to select a bank with trust powers under federal or state law to serve as trustee. A bank or other corporate trustee will charge trustee fees, but the price may be very reasonable, particularly if it preserves family harmony and provides professional management.
Generally, a settlor must consider who should serve as trustee after the deaths of both the settlor and the surviving spouse. Commonly, the settlor will want one or more of his or her adult children to serve as a successor trustee. In my experience, one trustee is preferred over multiple trustees. Assuming that an adult child has the necessary skills to serve as a trustee, I counsel the settlor to consider whether appointing an adult child as trustee is wise if it will create quarrels between the trustee - who is usually also a trust beneficiary - and trust beneficiaries or unpleasant situations if the trustee is required to treat some beneficiaries differently than other beneficiaries. I also ask the settlor to consider appointing an adult child who lives nearby if the settlor owns a house that the trustee may need to sell, as the trustee will need to supervise and coordinate the process of cleaning out the house, make decisions about repairs, and list the house for sale.
I also suggest that the settlor consider the impact that serving as trustee will have upon the life of an adult child. Some adult children may be so tied up in their work and with their families that they resent being appointed to serve as a trustee, rendering them unhappy or ineffective. Serving as a trustee can be hard work. I almost always recommend that the settlor agree to compensate the trustee for his or her services.
If a settlor decides that there is no suitable family member to serve as trustee, if conflicts are inherent, or if serving as trustee may set one family member against another family member, the settlor should preserve family harmony by selecting a third party individual, a bank, or other corporate trustee to serve as trustee.
This article is intended to provide a broad, general overview of trustee selection. It is highly recommended that you seek the assistance of competent counsel to advise on this and other estate planning matters.
Buechner Haffer Meyers & Koenig Co., L.P.A. is a full service law firm with a number of attorneys who are experienced with estate planning issues such as those outlined above. Should you have questions or interest in discussing your estate planning needs, please contact one of our experienced estate planning attorneys to determine the plan that will best fit your needs.