We often are asked for advice regarding choice of trustees. Of course every situation is different, but here are some points to consider.
You can select an individual as a Trustee, such as a close friend or family member; or a professional can be selected, such as an attorney or CPA; or you may choose a financial institution or a bank. A good Trustee should be someone who is honest and trustworthy, because they will have a lot of power under your trust document. The person you choose to act as a Trustee should also be financially responsible, because they will be handling the investments for the benefit of your beneficiaries. The Trustee should be someone who can get along and have a good relationship with the beneficiaries of your trust. They should also possess good record-keeping abilities.
In many cases, you may want to consider appointing co-trustees. A Trustee is required to abide by the terms of a trust. If that Trustee fails to do so, a beneficiary of the trust is not without recourse. One of the benefits of naming co-trustees is that they tend to hold one another accountable. In addition, most trusts will provide a way for the beneficiaries to remove a Trustee, and replace them with the next successor trustee on the list.
It is wise to name not only your immediate successor, but subsequent successor Trustees as well. An individual Trustee may refuse to accept the position, or may resign from the position due to any number of reasons. The Trustee may become disabled or die. Many clients want family members or close friends to act as successor Trustees. But since all individuals eventually pass away, it is good practice to name a bank trust department or other corporate trustee as the final successor trustee on the list. Some clients with very high net worth, or very complex assets, may name an institutional trustee from the very beginning – either as a co-trustee with a trusted family member, or serving as the sole trustee.
One of the advantages of naming a corporate fiduciary is that they manage trusts professionally every day, and usually know what they are doing. They act very objectively to follow the instructions set forth in the trust document. They have investment experience and record-keeping skills. They know the law, and follow the prudent investor rule. If they make a mistake, they have errors and omissions insurance, so the trust beneficiaries have a source to recover any potential damages.
The primary disadvantages of a corporate trustee, however, are cost and the fact that they may not have a personal relationship with the beneficiaries. A family member acting as trustee may better understand the family dynamic, and make better discretionary decisions when it comes to your loved ones.
On the other hand, although family members will usually serve for little or no compensation, they may not be the best choice for a Trustee. While the trust may allow for some discretion, some family members are prone to make decisions on an emotional basis. Most times, the family member is not an experienced Trustee and does not know what is required of him or her under the law. If they make mistakes, they may face the wrath (and legal action) of the beneficiaries, or the beneficiaries may be unwilling to take action, and your plans and goals for the beneficiaries are not fulfilled. If you do choose a family member as a Trustee, it is best to train them for the responsibility before you die. Perhaps your attorney or advisor provides successor trustee training, or you can spend time educating them now, before they are called upon to act.
Sometimes the best solution is a combination of a professional or corporate Trustee and a family member Trustee working together as co-trustees. The family member brings knowledge of the family situation, and the corporate trustee knows how to invest and maintain records.
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FAQs
Experience and Knowledge. Another key consideration is whether the individual or entity is qualified to act as trustee. If the trust has substantial assets, an individual with experience managing significant assets or with a background in finance or investments may be better suited to the role of trustee.
Who is the best person to be a trustee? ›
They should be people you know and trust, people whose judgment you respect and who will also respect your wishes. When choosing a successor, keep in mind the type and amount of assets in your trust and the complexity of the provisions in your trust document.
Who should act as a trustee? ›
If you are selecting a trustee, you can choose someone you know. It might be best, however, to find someone with experience. A trustee should understand the trust being set up and know what their responsibilities are.
Who is the best trustee for an irrevocable trust? ›
Thus, for trusts that may last a long time, a corporate trustee is often the preferred choice. Impartiality: The trustee must be capable of being impartial among the beneficiaries. This is especially difficult to do if the trustee is one of several beneficiaries.
Who is suitable to be a trustee? ›
Particularly if you have children who your Trust will provide for, you definitely might feel the weight and pressure of “getting it right.” But there are a few things you can assess to feel more confident in your decision. Almost anyone you trust, who is over the age of 18, can be your Trustee.
How to pick a trustee? ›
The person you want to choose likely has firsthand knowledge of your values and may also know your beneficiaries' strengths and weaknesses. Their personal connection to you can help them carry out your wishes and give you peace of mind that someone you deeply trust is in charge.
Who should I make a trustee? ›
You do not need to appoint a professional trustee, but this can be helpful if the others are unfamiliar with the obligations of the role. Alternatively, you can appoint family or friends and they can take advice from a professional trustee as and when necessary.
Who is usually the trustee of a trust? ›
Who can serve as trustee? A trustee can be an individual, such as a family member, friend, or trusted advisor (e.g., lawyer or accountant) or an institution, such as a bank or trust company. Each type of trustee has strengths and weaknesses which should be carefully weighed by the donor (see below).
Who to name as trustee of trust? ›
Getting legal advice
Successor trustees can be your adult children, other family members, close friends, or a corporate trustee from a bank trust department or trust company.
Who has the most power in a trust? ›
So, now you know that the Trust Maker holds the most power before the Trust is established, but the Trustee holds the most power after the Trust is established.
The grantor forfeits ownership and authority over the trust and its assets, meaning they're unable to make any changes without permission from the beneficiary or a court order. A third-party member, called a trustee, is responsible for managing and overseeing an irrevocable trust.
What assets should not be in an irrevocable trust? ›
A: Property that cannot be held in a trust includes Social Security benefits, health savings and medical savings accounts, and cash. Other types of property that should not go into a trust are individual retirement accounts or 401(k)s, life insurance policies, certain types of bank accounts, and motor vehicles.
Can a trustee spend the money in an irrevocable trust? ›
A trustee is allowed to use money from the trust they oversee to pay third-party expenses. It's possible that you may include additional circ*mstances in the trust's wording in which they may be able to make additional withdrawals.
Should a family member be a trustee? ›
While in some situations it is appropriate for a sibling or other family member to serve as trustee, in many cases, particularly with a larger trust, naming a family member is not the best decision, for several reasons. First, clients fail to appreciate the amount of work involved in being a good trustee.
Can a trustee also be a beneficiary? ›
It is not unusual for the successor trustee of a trust to also be a beneficiary of the same trust. This is because settlors often name trusted family members or friends to both manage their trust and inherit from it.
Is there a risk to being a trustee? ›
They don't ask the important questions, like does a trustee have any personal financial risks? When you become a trustee, you take on a serious obligation and serious personal liability. By law, you now owe a “fiduciary duty” both to trust itself, and more importantly, to the trust's beneficiaries.
Is there any downside to being a trustee? ›
They don't ask the important questions, like does a trustee have any personal financial risks? When you become a trustee, you take on a serious obligation and serious personal liability. By law, you now owe a “fiduciary duty” both to trust itself, and more importantly, to the trust's beneficiaries.
What makes a bad trustee? ›
Common Breaches of Trustee Duties in California. Too often, trustees breach their duties. Some of the most common ways they do this include breaches of trust, funds misappropriation, poor management, fraudulent acts, failure to act, and engagement with a competitor.
