To protect all that you have worked for and take care of the most important people in your life, you may have been advised to place some or perhaps all of your assets into a trust. Once you and your estate planning attorney have made that decision, you’ll need to decide who to name as your trustee or trustees. How to choose a trustee is a very important part of estate planning. Choosing 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.
Here are a 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 complex 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?
- What happens if your spouse remarries?
- Will a child who is a trustee be fair to the other siblings, even if they are step siblings?
- Will a child who is managing work and family have the time to take on the responsibilities of the trustee?
Some people decide that no family member is the right fit for the trustee role, and opt instead for their estate planning attorney, accountant or financial advisor to serve as a trustee. There are some questions to ask:
- Does the person understand the family dynamics?
- Has the person served as a trustee before?
- Can they separate their personal financial interest from their clients?
- If there is a breach of duties, will their professional malpractice coverage be enough to make the trust whole?
Some families prefer to use a bank or trust company to provide fiduciary services and act independently for the trust. This may reduce conflicts among family members, while providing professional services. Fees are typically based on the size of the estate, which may be a consideration.
Another idea is to have more than one trustee to provide a balance of recordkeeping, investments and other trustee duties. A properly drafted trustee agreement, created by an experienced estate planning attorney, will outline specific duties of the trustees. An individual co-trustee might better understand your heir’s needs and be able to help other trustees in making decisions to benefit family members.
Reference: Kiplinger (Sep. 8, 2020) “Guidance on Choosing the Right Trustee (or Trustees) for Your Estate”