What do you need to consider when selecting a Trustee for your estate plan? Often the selection of a fiduciary is not given much thought before meeting with your attorney to discuss your estate plan. Many clients are prepared to discuss what they want to be done with their estate and to whom they would like their assets to be distributed to, but little advance thought is given as to who will administer your estate plan. Suddenly, while meeting with your estate planning attorney you are faced with making decisions that could vastly impact your life and/or the lives of your loved ones.

When is a Trustee needed?

Anytime your estate plan provides for a trust, you will need to appoint a fiduciary to administer your trust, namely the Trustee. Trusts are a vehicle that keeps the trust assets separate from the personal assets of a beneficiary. Often trusts are considered for management of assets, collective investment of financial holdings and property, blended families, estate plans that include multiple generations, complicated assets, special needs family members, and many more situations. Trusts are also common planning techniques for tax planning, as well as to protect trust assets from creditors of the beneficiary, potential lawsuits against a beneficiary, and spouses of beneficiaries.

What is a Trustee and what are the responsibilities of a Trustee?

A Trustee will manage the trust assets, such as financial assets, real and personal property, mineral holdings, and business interests. A Trustee is also tasked with making distributions to the trust beneficiaries pursuant to the trust document. The Trustee must properly account for all assets and trust transactions pursuant to the trust document and the laws of the State of the trust’s situs. A Trustee must also review and file all required income tax returns. Trustees must remain impartial towards the trust beneficiaries. Trustees may also be responsible for payment of the bills of a trust beneficiary, or the expenses associated with the maintenance of trust property. Additionally, Trustees may also be responsible for determining whether trust expenses are allocated against trust income, principal, or both. All of these duties and tasks ensure the need for a well-organized and fully engaged Trustee.

What to consider when selecting a Trustee?

So, what should you consider when making such an important decision? You have many options concerning the type of Trustee that you can appoint. You can consider a family member, friend, a professional, a corporate Trustee, or a combination of more than one of these options. The benefits of selecting a family member or friend are that they often will serve at no cost to the Trust. Additionally, they are more likely to have personal knowledge of the trust beneficiaries and the family dynamics. They may even have a strong knowledge of the trust assets, especially when there is a working business, ranch, or farm. However, there is little protection to a trust for a bad individual trustee. Theft, mismanagement, and a general misunderstanding of how to properly administer a trust could leave your beneficiary facing legal action to try to recover damages against an individual Trustee. A corporate or professional Trustee will bring to the table the ability to remain neutral during potential conflict, the ability to manage unique or specialty assets, continuity, and most importantly, experience. Professional Trustees and corporate Trustees also offer additional protection from mismanagement. The trust beneficiaries will have more opportunities to protect their interests from mismanagement because professional and corporate Trustees offer a greater level of protection to the trust assets. They bring structure and oversight to the trust administration. Professional and corporate fiduciaries are required by law or governmental agency regulations to follow regulatory and audit oversight controls. Thus, it is much less likely for a professional or corporate Trustee to be accused of theft or mismanagement and they are often covered by insurance or other legal protections.

How many Trustees do you need?

Unless your Trust document indicates differently, one is the minimum number of Trustees you need for a Trust. You can appoint more than one individual to serve jointly as Co-Trustees. Additionally, you may consider appointing an individual as a Co-Trustee to serve jointly with a professional or corporate Co-Trustee. Adding more Trustees will provide additional oversight and allow the Trustees to share the workload. Co-Trustees with different backgrounds will bring more experience and efficiency, resulting in a better quality of life for the Trust beneficiaries. For instance, your family member Trustee will be able to provide advice and experience about the family history or the beneficiary and act as a liaison for the beneficiary, while the professional or corporate Trustee will have the expertise and relationships to assist with a smooth and efficient trust administration. There will likely not be a reduced cost to the Trust even if you are appointing an individual to serve jointly with a professional or corporate Co-Trustee. Often professional or corporate Trustees do not reduce the fees for their services when they are appointed as a Co-Trustee. You should also ensure that the Trust document is drafted in a way that joint fiduciaries can work together and include provisions regarding disagreement amongst Co-Trustees.

What are the duties of a Trustee?

A Trustee is obligated to keep a beneficiary informed about the business of the Trust, including keeping the beneficiary informed as to all investments and distributions being made. Tasks such as these can be daunting to an individual Trustee. A Trustee is also obligated to protect and preserve the assets of the Trust. However, such accounting, safekeeping, and asset management can be outsourced by a Trustee. Thus, a prospective Trustee should have the knowledge and connections to locate appropriate professionals to assist with the investment, management, and preservation of the trust assets. A Trustee should be able to work with your entire circle of influence, your family members, business partners, attorney, tax professional, investment professional, and others you or your beneficiary rely upon for advice and assistance.

What does a Trustee charge for their services?

The cost of a Trustee’s services is something to consider as well. While a family member or personal friend or colleague may be willing to serve as the Trustee of your trust at no cost, the savings may not be much different than the cost of a professional or corporate Trustee. An individual Trustee will likely need to seek out the assistance of other paid professionals, such as attorneys, investment advisors, property managers, case managers, tax professionals, and other professionals. Often corporate and professional trustees include some or all of these services in their fee for Trustee services. A professional Trustee often charges their hourly rate for their services to the Trust and will most likely still need to bring in some paid outside professionals to assist with asset management and other trust administration duties. Corporate Trustees outline their costs in advance, in writing, resulting in a much more reliable cost to maintain the Trust. A corporate fiduciary such as a bank, financial institution, or trust company, typically charge based on their rate schedules which are tied to the value of the trust assets under management. They often include in their fees services what would often be outsourced and paid for separately by an individual or professional Trustee.

Other considerations when selecting a Trustee.

The nature and circumstance of the trust beneficiary should be carefully considered when selecting your Trustee. Can your individual Trustee handle a difficult beneficiary, or do they have the appropriate skill for a specialized trust, like a special needs trust? If you have a family member or loved one with a disability or addiction these are very specific situations that require specialized knowledge in areas of addiction treatment or public benefits. Careful deliberation in selecting a Trustee for situations such as these is imperative. An enabling Trustee could make for a negative result for an addict. The loss of public benefits for a special needs beneficiary could be life-altering.

If you select a family member or friend, they should be good with money and financially astute. They should be able to make themselves impartial when working with the trust beneficiaries. If an individual Trustee is too close to the family drama, they may end up doing more harm than good. Or perhaps appointing one child over the trust of another child may exacerbate sibling rivalries. You may want to consider the selection of a professional or corporate Trustee who can rationally approach the beneficiaries of the trust and put some distance between themselves and the family dynamics and treat all trust beneficiaries fairly and equally. The advantages of a professional fiduciary such as a lawyer or accountant are that they are likely familiar with your family dynamics and financial situation. When considering a corporate Trustee, you should choose an institution whose trust officers understand your personal objectives and family dynamics and that you are comfortable with.

Doing your background research regarding a potential Trustee is important. Corporate Trustees often have a minimum threshold of assets that they are willing or able to accept. You will want to ensure that the Trust assets are of a sufficient nature and value to cost-effectively handle the expenses of a paid Trustee. Many corporate, and some professional Trustees, are not able to consider trusts with small values or which hold insufficient cash to maintain trust assets. You will need to do your due diligence and interview and research the minimum requirements and types of assets that a corporate Trustee is willing or able to take on. Not all corporate Trustees offer the same services or are able to accept, maintain, or manage certain specialty assets, such as minerals, closely-held businesses, or certain high-risk or environmentally challenged assets.

Rely on the experts you already work with.

You should make sure to consult your estate planning attorney about their personal knowledge of available Trustees. Often your estate planning attorney has contacts or ongoing relationships with professional and corporate Trustees and can be an invaluable resource when initiating your search for a Trustee for your estate plan. Most estate planning attorneys are willing to assist you with your research and search. We at Rapp and Krock will gladly assist you in navigating the search for your Trustee.