In selecting a successor trustee for a living trust, people often gloss over the complications involved and think in terms of such broad generalizations as “manage my estate” and “take care of my beneficiaries.” In reality, a trustee performs very specialized functions.<\/p>\n
The trustee must prudently invest assets, consider distribution requests, keep accurate records, file tax returns, account to the beneficiaries, and carefully weigh often complex legal and tax issues.\u00a0The trustee must obey strict duties for the benefit of your beneficiaries, being financially liable to them if the trustee violates those duties. Also, being trustee is usually a time-consuming, frequently thankless job.<\/p>\n
\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0 For living trusts, a trustee is needed for at least three separate situations:<\/strong><\/p>\n \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/strong>The personal attributes of the trustee should be of paramount importance in the selection process.\u00a0A trust that works for tax purposes will be of little benefit if an imprudently selected trustee dissipates the trust assets through poor administration.<\/p>\n There are four possible choices for trustee:<\/p>\n As discussed below, each choice has advantages and disadvantages. Factors to consider include: reliability, integrity, and financial responsibility; willingness and ability to devote time to the job of trustee; relationship to the beneficiaries; personal dynamics among the beneficiaries; judgment, experience, impartiality, and potential for conflict of interest; and the size and type of trust assets.<\/p>\n Unlike an “outsider,” a family member knows you and the personalities involved. A family member may also serve for free, although my experience is they usually are paid.\u00a0 However, there can be significant disadvantages to having a family member as trustee.\u00a0The family member may lack experience in the crucial functions performed by a trustee. The family member trustee may be subject to pressure or influence by beneficiaries.\u00a0Throwing a family member in the middle of family hostilities by naming him or her as trustee could become a ticking time bomb that eventually may explode. Ask yourself whether the proposed family member trustee will be susceptible to influence by other family members. Will the family member tirelessly withstand the beneficiary who is constantly asking for funds?\u00a0 Will the family member resist the temptation to play favorites among beneficiaries?\u00a0The very intimacy that seems to make a family member an ideal choice can be a burden and disadvantage sometimes.\u00a0Also, conflicts of interest may arise when the family member is both a trustee and a co-owner of trust property or a beneficiary.<\/p>\n In considering a trusted friend as an option, be mindful that being a trustee for someone else’s trust is time-intensive and can entail a high degree of personal liability.\u00a0A friend should not be expected to serve as trustee for free.\u00a0As with a family member, the trusted friend probably is inexperienced in trust administration and will require assistance from a lawyer, an accountant, and possibly a financial advisor.<\/p>\n A corporate trust department employs individuals with specialized training and experience in all the diverse areas involved in trust management and administration.\u00a0A trust department employs lawyers, tax specialists, investment professionals, and trust administrators.\u00a0This team of individuals should possess a higher degree of knowledge across all these areas than almost any one individual.\u00a0A corporate trustee provides neutral and objective supervision, treating all beneficiaries in the same way.\u00a0Corporate trustees also have the accounting and record keeping capabilities required for trust administration.\u00a0They can provide accounting which distinguishes between principal and income and can track investment information, such as cost basis and current yield.\u00a0 Certainly, a corporate trustee will charge a fee for serving.\u00a0That fee should be compared against the fee charged by an individual trustee plus the accountant and attorney’s fees incurred by the individual trustee.<\/p>\n In California, another option involves nominating a California private fiduciary.\u00a0As with corporate trustees, private fiduciaries could be interviewed, with their potential services and fees described.\u00a0(See Professional Fiduciary Association of California\u2019s web page http:\/\/www.pfac-pro.org<\/a> \u00a0and Department of Consumer Affairs Professional Fiduciaries Website \u00a0http:\/\/www.fiduciary.ca.gov<\/a> )<\/p>\n Your trustee is bound by several legal duties, including the duty to be prudent, the duty of loyalty, and the duty of impartiality.\u00a0Other duties include the duty to identify and collect property, the duty to protect property, the duty to account to your beneficiaries, the duty not to delegate unwisely, and the duty to carry out the purposes of your trust.\u00a0These are complicated duties.\u00a0A trustee can be held personally liable for losses that occur if such a fiduciary duty is violated.<\/p>\n In selecting a trustee, ask yourself these questions:\u00a0(1) Is the trustee capable of handling the types of assets that will be held in the trust?; (2) Is the trustee capable of, and inclined to, resolve problems that may arise with the trust and its beneficiaries?; (3) Is the trustee capable of managing the trust investments?; (4) Will the trustee be able to devote the time and attention needed to avoid problems?; (5) How well will the trustee get along with the beneficiaries?\u00a0Will there be hostility or antagonism between the trustee and a beneficiary?; (6) Is the trustee capable of communicating with the beneficiaries?; (7) Will the trustee\u2019s greed prevent proper trust administration?; (8) Will the beneficiaries respect and accept the trustee?; (9) Is the trustee capable of understanding and fulfilling the fiduciary duties and responsibil\u00adities of trusteeship?; (10) Is the proposed trustee likely to suffer major personal problems (health, family, or financial)?; (11) Do the beneficiaries have inflated ideas of their financial needs?\u00a0 If so, can the trustee handle them?; and (12) What compensation may the trustee receive?<\/p>\n Some clients prefer the option of the successor trustee working in conjunction with special trustees.\u00a0For example, if you nominate a corporate trust department or California private fiduciary as trustee, you could nominate as special trustees the individuals in your life whose judgment you trust.\u00a0Those individuals could be given many powers over the trustee.\u00a0For example, the special trustees could nominate the trust department or private fiduciary to serve as trustee, fire that trustee, and replace it with another trust department or private fiduciary as trustee.\u00a0The special trustees could be entitled to regular accountings and status reports.\u00a0 You could also require the trustee to confer with the special trustees prior to any significant changes to the trust assets.\u00a0Special trustees could even be given a veto power over the trustee’s proposed actions.\u00a0 \u00a0(You can also use the special trustee concept when your trustee is a family member or friend.)<\/p>\n Copyright 2014 Phillips Law Offices, A Professional Corporation<\/p>\n","protected":false},"excerpt":{"rendered":" In selecting a successor trustee for a living trust, people often gloss over the complications involved and think in terms of such broad generalizations as “manage my estate” and “take care of my beneficiaries.” In reality, a trustee performs very specialized functions. The trustee must prudently invest assets, consider distribution requests, keep accurate records, file … Continue reading Who should be successor trustees of your living trust?<\/span> \n
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