Whether you are in the process of creating your first trust or are reviewing your existing trust, selecting the right trustee can make or break the trust administration process. Your selected trustee will be responsible for all trust matters and will play a crucial role in your loved ones’ futures. We understand the role’s importance and that choosing the right trustee may cause anxiety and lead you to procrastinate. We are here to make this decision easier for you.
I. What should you look for when selecting a trustee?
While being financially savvy or having a background in tax, law, or finance may be advantageous trustee qualities, they are not required. When considering potential trustees, we recommend looking for someone with the following qualifications:
- Asks for help when needed. The trustee does not have to be an expert on every area of trust administration. They are able to seek assistance from financial advisors, tax preparers, and attorneys, at the trust’s expense, in order to fully carry out their responsibilities.
- Is detail-oriented. Trust administration requires that specific legal steps must be taken. For example, the trustee will be asked to compile a list of everything the trust owns and keep accurate records of income and expenses. Being too general with this information can cause tension between the trustee and beneficiaries and could possibly lead to legal action.
- Is organized. Depending on what the trust owns, how many beneficiaries there are, and the trust distribution plan, there may be a lot of moving parts to keep track of. In addition to managing the trust, the trustee will need to ensure that they do not mix their personal affairs with those of the trust.
- Has good communication skills. While the trustee has most of the authority over the trust, they are supposed to act in the best interest of the beneficiaries. It is important that the trustee communicates clearly with the beneficiaries and is available to answer any questions the beneficiaries may have in a timely manner. They also need to be able to get along with the beneficiaries.
- Is a rule follower. In trust administration, there are state and federal laws, as well as the instructions within a trust, that must be followed. While a trust may authorize a trustee to use their discretion in some instances, there are other times when the trustee is required to do certain things. Failing to comply with the rules can subject the trustee to potential civil and criminal penalties.
II. Whom can you choose to be your trustee?
Although the choice of trustee is a very serious matter, you have several options available to you depending on your circumstances and what matters most to you:
- Family members. It is quite common for clients to select a family member (e.g., a spouse, child, parent, sibling, etc.) to be their trustee. A family member will likely have intimate knowledge about your wishes and values, which will make trust administration easier if you want to authorize your trustee to give money and property to your beneficiaries at the trustee’s discretion. If your trustee is also a beneficiary, your trustee could decide not to take any compensation for acting as trustee because they will be receiving something under the trust’s terms. Therefore, the administration costs could be less. However, allowing the beneficiary to be the trustee could jeopardize or limit the amount of protection their inheritance will have, depending on the other terms of the trust agreement.
- Close friends. These people will likely understand your values and wishes, making any discretionary decisions easier; however, depending on your family dynamics, your close friends may not want to get involved in any conflicts that might arise. Also, if they are not trust beneficiaries, they may want to be compensated for the work they do, and depending on your other beneficiaries’ attitudes, they could become disgruntled that your trustee is getting money from the trust, even though the trustee is legally entitled to it.
- Professional third party. If protecting your beneficiaries’ inheritances and avoiding family conflict is important to you, a professional trustee may be able to offer additional protection. Further, because administering trusts is their profession, they will likely understand every step that needs to be taken and have the appropriate setup to efficiently and accurately administer your trust. However, because trust administration is their job, they will require compensation and will inform you what they charge. This amount will likely be higher than what a family member or close friend would seek for compensation.
Choosing the right trustee is crucial to ensuring a successful trust administration. We understand that this can be a difficult choice. We are committed to helping our clients evaluate their choices and select the best one for their unique situation. We have a trustee scorecard that you can use to evaluate your potential trustees. If you have questions, would like to discuss your potential trustees, or need to revise your trustee selection in your trust, please reach out to us.
