Choosing a Trustee

This post aims to help settlors make their best choice for successor trustee to help ensure that things go smoothly in the future. As a firm with experience in both trusts and trust litigation, we’ve gained some insights into selecting a successor trustee that may help to avoid disputes down the road.

Most revocable trusts, often called “living trusts,” list the settlor (the person creating the trust) as the initial trustee. After the settlor is deceased, a new “successor” trustee takes over to manage and distribute the property according to the trust’s terms. The settlors choose the successor trustee or select a method of choosing the successor trustee when the trust is created.

Choosing the right trustee might be the single most important decision made in estate planning. Successor trustees have a big job to do. Legal notices need to be sent. Taxes must be prepared and filed. Accountings must be provided to beneficiaries. Documents regarding real property must be recorded with the county where real property is located. Much of this work needs to be done during a period of grieving following the settlor’s death.

 

Who to Choose?

The most common choice (but not always the best) is an adult child of the settlor or another family member. However, elders, whether they realize it or not, often keep a lid on family disagreements. Only after they are deceased do family tensions boil over. In that case, what happens between beneficiaries when one of them is in charge of the family fortune? Sometimes things go well. Sometimes they don’t. Also, it’s worth mentioning in this increasingly international world that its best to name a US citizen as trustee to avoid the trust being later taxed as a foreign entity.

It may be that a loved one is the best choice for a successor trustee. Every case is unique. When choosing a successor trustee, it’s a good idea to ask the following about your potential choice:

  • Is the trustee financially responsible and independent?
  • Do they play by the rules?
  • Do they get along with other beneficiaries?
    • Do they have a relationship with other beneficiaries apart from the settlor?
    • Is there any animosity between them?
  • Does the trustee have the time to take on the responsibility of managing a trust?
  • Do they know when to hire professional help such as an accountant or attorney?

None of these questions should be used in isolation to decide on a successor trustee. However, if you answered “No” to any one or more of the above, you may want to take a closer look.

 

Alternatives to Consider

There are alternatives that every settlor should at least consider. Some of these are:

  • Naming a California Licensed Professional Fiduciary (“LPF”)
  • Naming an Institutional Trustee (bank or other financial institution)
  • Naming successor co-trustees

In some circumstances, one of these may be a better choice than naming a loved one to act as the sole successor trustee. Any of these choices should also be examined carefully.

LPF’s are bonded and must meet certain pre-licensing education requirements. LPF’s are often individuals, however, which means they may not be available when the time comes for them to take over as trustee. It might be better to include a provision allowing a majority of beneficiaries to choose an LPF when the time comes rather than naming one who may be unavailable when the settlor passes. Also, an LPF will charge trustee’s fees, whereas a family member may or may not.

An Institutional Trustee might also be a good alternative. A large bank is unlikely to abscond with trust money. Most Institutional Trustees require a minimum amount of trust corpus (money and property) before they will agree to serve and can sometimes be rigid during administration. Like LPF’s, an Institutional Trustee will charge trustee’s fees.

Selecting co-trustees to serve after the death of the settlor may create a check on any one person’s failure to faithfully administer the trust. Co-trustees can also divide the work between them. Co-trustees who do not get along however may spell trouble for efficient administration.

 

Conclusion

Whether you choose a family member, LPF, Institutional Trustee, or co-trustees, your choice of successor should be considered carefully. There’s no sure choice of successor trustee that works in all cases. Working with a licensed attorney to create your trust who can provide an outside perspective and their expertise and experience will go a long way toward helping to avoid trustee related disputes down the road.


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