Clients frequently choose to use trusts in their estate plans, and once they and their estate planning attorney have made that decision, they’ll need to decide who to name as trustee or trustees. Picking a trustee is not always an easy process, explains Kiplinger in the article “Guidance on Choosing the Right Trustee (or Trustees) for Your Estate.”
Serving as a trustee creates many duties under state law, including acting as a fiduciary to the trust. That means the trustee must be impartial about their own interests, put the beneficiary’s interests and well-being first and be prudent with how they invest funds. Law prohibits a trustee from self-dealing, although depending on the scenario, the trustee might also be the beneficiary.
Here are a long series of questions that will help to assess a person’s ability to serve as a trustee:
- Will the person be able to separate their personal feelings and interests from those of the beneficiaries?
- Will all parties be treated fairly, especially if your children are not also your spouse’s children?
- Can your trustee manage finances and investments?
- Is there any risk that your trustee will be tempted to take a risk to obtain money at the expense of beneficiaries, including their own money problems or addiction?
- Are there concerns about the health, age or capacity of the person?
- Will a child who is a trustee be fair to the other siblings, even if they are step siblings?
- Will a child be able to stand up to the other siblings?
- Will the person who is managing work and family have the time to take on the responsibilities of the trustee when they will likely be needed to do so?
- Does the person understand the family dynamics?
- Has the person served as a trustee before?
Another common problem is people are unsure of who to ask in their family or where to look for back-up trustees, especially where they might not feel comfortable with those closest to them. With that in mind, here are some potential people to consider, although their suitability will vary greatly in different circumstances:
- Children, step children, and grandchildren
- Siblings and step siblings, nieces and nephews, cousins
- Spouses of children, step children, siblings or other close family
- Members of social groups, fraternal organizations, religious communities or other similar groups
- Financial Professionals (not necessarily financial planners who likely aren’t permitted to, but CPAs or some attorneys for example)
- Professional Trustees (e.g. a bank or other similar trustee)
I should note as well that I’m focusing on trustees in this article, but many of these same considerations apply to other fiduciary roles. See here for more information on the other roles to consider. https://www.galliganmanning.com/the-difference-between-an-executor-a-trustee-and-other-fiduciaries/
There is no one size fits all approach to picking a trustee, but hopefully this will provide guidance on who is right for you.
Reference: Kiplinger (Sep. 8, 2020) “Guidance on Choosing the Right Trustee (or Trustees) for Your Estate”