Who Should I Choose as Trustee

Who you choose as trustee becomes more important as the scope of things you want to accomplish increases. If you want a trustee to simply distribute assets and close the estate after your death, the selection of a responsible person or reputable institution is relatively straightforward. If you want a trustee to preside over an irrevocable trust designed to last years or decades for the benefit of one or more beneficiaries, your selection decision becomes critically important.

First, let’s review your options. Trustees can be:

Corporate Trustees: institutions such as banks, trust companies, and more recently, independent professional trustees.

OR

Individuals: specific persons who are usually family members, friends, or advisors (attorney, accountant, etc.) of the trust creator.

For uncomplicated situations in which you want the trustee to pay your debts, distribute your assets and close the estate after your death, most people appoint their spouse or another family member as trustee and a bank or other corporate trustee for backup (called a successor trustee) in case the first trustee is not able or willing to act in the role of trustee.

If you are a trust creator (grantor) with a more complicated situations in which the trustee will be expected to administer irrevocable trusts for the benefit of one or more beneficiaries over a period of years, I think there are a number of issues which will require your consideration and reflection before pointing trustee. I will briefly highlight some of the issues with each type trustee below.

The initial impulse for many trust creators is to select the most responsible or financially successful child as the trustee. While this may seem logical, there may be emotional and relational consequences for that child with his/her siblings. Depending upon the structure of the trust(s) there may also be inherent conflicts of interest. Finally, depending on the size of the estate/trust(s) there may be an impact on the child’s life course. All of these issues require, in my opinion, reflection and discussion with the child who would be the potential trustee.

A plausible alternative to appointing a child or other family member as trustee is to use a corporate trustee. Banks, trust companies, and independent professional trustees can usually articulate a long list of advantages to using their services (professionals on staff, depth of experience with similar situations, relatively permanent institutional presence, etc.) but many trust creators find their services to be expensive, especially when fees are charged annually for each year the trust is in existence. Some trust creators are concerned that, over the years, trust company fees could reduce the corpus meant to be available to their beneficiaries.

A second concern about trust companies that I have heard from many beneficiaries is their risk averse/bureaucratic nature. Corporate trustees are sometimes perceived as interfering with a beneficiary’s access to his/her inheritance. In my experience, corporate trustees are indeed much more bureaucratic than individual trustees and have extensive procedures to ensure compliance and reduce corporate risk.

Thanks to more recent innovation and creative thinking on the part of estate planning attorneys, it has become possible to create hybrid arrangements in which corporate trustees and individuals can be appointed as co-trustees and/or be given responsibility for different aspects of the primary duties of the trustee role. Doing this often raises hesitancy on the part the corporate trustee and can create future issues regarding communication or potential conflicts, but, along with other innovations, is becoming more common.

One last critical but often overlooked detail to consider: corporate and individual trustees always have the option of declining the appointment when they are asked (usually after your death). Corporate trustees usually require a minimum amount and evaluate the type of holdings in the trust (some refuse real estate holdings, for example) before accepting an appointment as trustee. Individual trustees, of course, will evaluate their stage of life and capacity when considering whether to accept the appointment. Therefore, in my opinion, periodic review of your documents and discussion with those you have appointed as trustee are necessary.

Please don’t hesitate to contact me for a confidential discussion of the details of your situation. I would be happy to act as a sounding board and offer recommendations.