Choosing The Right Trustee For Your Trust: A Comprehensive Guide

Introduction

Establishing a trust can be a valuable step in protecting your assets and ensuring a smooth transfer of wealth to your loved ones. A trust provides that assets pass to beneficiaries without going through probate. The trust can also be set up to protect assets for you and your beneficiaries.

Selecting the right trustee is critical when ensuring your trust is managed correctly. Your choice can significantly impact the effectiveness, efficiency, and cost of managing the trust. Choosing the wrong trustee can be catastrophic for your beneficiaries.

Who Can Serve as Trustee of Your Trust?

1. Yourself as Trustee

Most trusts that are created are revocable living trusts. These trusts are created during your lifetime and are revocable, which means that you can amend the trusts at any time. It’s most common for the initial trustee to be yourself when it’s a revocable living trust. This gives you the greatest flexibility and control and can keep the cost of maintaining a trust at nearly zero.

2. Individual Trustee

An individual trustee is often a trusted friend or family member who has a close relationship with the person creating the trust). This person should be responsible, trustworthy, and able to handle financial matters. Pros of selecting an individual trustee include a personal connection, lower fees, and a deeper understanding of your wishes. Potential cons include limited financial inexperience, potential conflicts of interest, and issues if the trustee becomes incapacitated or dies.

We often recommend to clients that they should name individual trustees after themselves so that if they are incapacitated, or pass away, someone they can step in and manage the trust.

3. Professional Trustee

A professional trustee is typically a financial institution, such as a bank or trust company, or an attorney or CPA with expertise in trust management. Professional trustees possess the necessary experience and knowledge to manage your trust effectively. The benefits of choosing a professional trustee include expertise, objectivity, less conflict between family members, and continuity in trust management. However, this option may come with higher fees, less personal connection, and potential inflexibility in decision-making.

We often recommend that clients only choose a professional trustee if they do not have an individual trustee to manage the trust. We’ve found professional trustees to be expensive and far too rigid in managing the trust.

4. Co-Trustees

Co-trustees involve appointing two or more trustees to manage your trust. This arrangement can combine an individual trustee’s personal connection with a professional trustee’s expertise. You can also have two individual co-trustees serve together (e.g., two family members). Co-trustees can provide checks and balances, ensuring that decisions are made in the trust’s best interests. However, potential drawbacks include conflicts between co-trustees, the additional complexity in decision-making, and higher overall fees.

It’s essential when naming co-trustees to specify how decisions are to be made. Decisions can be made jointly or independently. If co-trustees work well together and can likely agree on decisions, then independent decision-makers will give the co-trustees much more flexibility and allow trust decisions to happen more quickly. If you’re unsure of how well co-trustees will work together, or you want to ensure checks and balances with your trust, then having the co-trustees make decisions jointly will be a good option. Ensure you include a tiebreaker if co-trustees cannot agree and there are even more co-trustees.

Key Factors to Consider When Selecting a Trustee

1. Trustworthiness and Integrity

The most crucial factor in choosing a trustee is their trustworthiness and integrity. Your trustee will manage and distribute your assets according to your wishes, so selecting someone who will act in your best interests and honor your intentions is critical.

Even if the trustee may have poor financial acumen and experience, a trusted trustee is arguably the most important quality for a trustee. And if someone isn’t the best financially but is trusted, they can always hire a financial professional to help guide their decisions.

2. Financial Acumen and Experience

The ability to manage financial matters effectively is essential for a trustee. A trustee with a strong financial background and experience in trust management can help ensure that your trust assets are well-managed, risks are mitigated, and tax implications are minimized.

3. Availability and Commitment

Serving as a trustee requires time, dedication, and ongoing commitment. Ensure the person or institution you select is willing and able to dedicate time and attention to managing your trust.

4. Impartiality and Conflict Resolution

Your trustee may need to mediate disputes or make difficult decisions that impact beneficiaries. Choose a trustee who can remain impartial and effectively navigate conflicts while keeping the trust’s best interests in mind.

Conclusion

Selecting the right trustee for your trust is a critical decision that can significantly impact the management and distribution of your assets. Carefully consider the pros and cons of each option, and weigh the importance of factors like trustworthiness, financial acumen, availability, and impartiality when making your choice. We also highly recommend discussing who will serve as trustee with your attorney.