Stacie D. Nyborg, Attorney
September, 2015
When creating your estate plan, one of the most important decisions is deciding who will succeed you as successor trustee of your revocable trust or who will be the acting trustee of your irrevocable trust. For most people, the initial reaction is to have a friend, a child or a sibling act as the trustee. While this person may be close to you personally, they may not be the best choice to manage your business, financial, or personal affairs and relationships. Rather, your trustee should be someone who will carry out the objectives and terms of your trust and also have the emotional maturity, wisdom, and business savvy to manage the trust and its assets for the trust’s beneficiaries for potentially several years to come.
There are four main areas to consider when selecting a trustee:
Ability to Manage the Trust’s Assets – This may depend on the types of assets that you have in your trust. For instance, if you have several rental properties, are you confident that the trustee will be able to manage those properties and understand the legal, accounting, and other landlord duties that will become his or her responsibility? Likewise, if you have a significant stock or bond portfolio, does the trustee have a basic understanding of the investments and a track record to demonstrate that he or she can adequately handle these types of assets? Similarly, if you will be leaving behind a business, will the trustee be able to step in and fill your shoes to ensure that the business can continue on without you? The trustee that you name will have to act quickly and start wearing many hats to protect and continue to grow the value of your estate’s assets for the benefit of your trust’s beneficiaries.
Interacting with Beneficiaries – The trustee is the leader of your estate and will have to deal closely with the beneficiaries of your trust, especially if you have minor children, a loved one with special needs, or have an estate plan that spans more than one generation. The trustee will need to treat each of the beneficiaries of your trust equally and impartially. Above all, the trustee must be able to avoid conflicts of interest and not self-deal—meaning taking actions that would benefit the trustee personally or his or her spouse and children to the detriment of the trust’s other beneficiaries. The trustee will also have to be flexible and able to deal with different personalities, emotions and complex situations. There are also geographic considerations to take into account depending on where your beneficiaries live and trust assets are located. It is also important to pick someone that is willing to serve as trustee. The fallout can be serious if you name someone as trustee and he or she is unwilling or resistant to act.
Legal Requirements and Tax Consequences – Your trustee should be someone that will act competently and in good faith. The trustee will need to understand the legal requirements involved with administering the trust and ensure that the necessary statutory deadlines are complied with. The trustee will also need to enter into contracts, prepare tax returns, work with professional advisors, and help to assure that none of the impacted parties are negatively affected legally or tax-wise during the course of the trust administration.
Fees and Standards – Being a trustee is hard work. For this reason, most trusts allow for trustees to be compensated. This in itself may also make some beneficiaries uneasy if they think the trustee is not able to do a good job or is benefitting disproportionately from a trust. It is therefore important to set reasonable fees based upon the size of the trust. That being said, you also want to be sure that you are selecting the trustee for the right reasons, not because they may need the extra income associated with being your trustee. Should anything go wrong, you also want to make sure that your trustee will be able to cover any damages for malfeasance or beach of duty that might occur. Careful drafting of the trust document also provides the trustee with an appropriate roadmap and standards that they can rely upon to administer the trust according to your wishes.
Understandably, the list above may seem daunting and you may feel like no one fits all of the criteria. If this is the case, there are other options available to you. For instance, you may consider having a mix of professional and nonprofessional trustees that will each be in charge of specific areas of your estate. You may also name a special trustee or advisor who will be able to support the trustee and provide supplemental expertise. Naming more than one trustee, however, must be done correctly and all of the ramifications must be considered. For instance, merely naming two co-trustees without providing specific directions and qualifications may actually exacerbate rather than solve the problem if conflicts arise and they cannot agree on a course of action. If you are evaluating your trustee selection for an existing trust or are creating a new trust and would like more guidance, please contact a qualified professional or the attorneys at Buynak, Fauver, Archbald & Spray, LLP for more information.
Stacie D. Nyborg
(Direct) 805.966.7511
© 2015 Buynak, Fauver, Archbald & Spray, LLP
DISCLAIMER: This Advisor is one of a series of business, real estate, employment and tax Advisors prepared by the attorneys at Buynak, Fauver, Archbald & Spray, LLP. This Advisor is not exhaustive, nor is it legal advice. You should discuss your particular situation with us or with your own attorney. Our legal representation is only undertaken through a written engagement letter and not by the distribution of this Advisor.
