The Best Trustee for your Estate Plan
The Best Trustee for Your Estate Plan. In 2005 a trust beneficiary filed a law suit against her trustee (her father) claiming that her father illegally transferred $2 billion of her money to a trust for another beneficiary. The case was settled for just under $1 billion. The father and daughter in this story are members of the Pritzker family (Hyatt Hotels, etc.) and while the story involves famous people, it highlights the need for care in choosing trustees for yourself and your loved ones.
For those readers who already have a living trust, it is likely that you are serving as your own trustee and will continue in that role as long as you are willing and able to do so. For maximum control, you are definitely the best Trustee for your trust – if you’re able to serve. But what if you are not serving due to a disability or death?
Before we talk about how to choose the right trustee, let’s talk about the trustee’s job. A trustee is the legal owner of assets held in trust. When you establish a trust, you could choose to be the trustee of your own trust while you are alive and able to take care of your own finances. Upon your death or in the event of your incapacity, a “successor” trustee that you have previously chosen steps in to take over control of the assets held in your trust.
The trustee is required to use the assets only for the benefit of the trust beneficiaries, who are determined by you. In the event you are incapacitated and still living, you would more than likely be the beneficiary of the trust. If you are no longer living, the beneficiaries receive your assets as described in the trust.
The chosen trustee will have control over how the assets are invested. They may also be responsible for making distributions to the beneficiaries and ensuring that tax returns and other filings are done correctly. With that in mind, what should you look for in a trustee?
This is probably the most important consideration of all, and is implied in the title “trustee.”
Understanding of family history and culture
Depending on whether the trust is designed to be in existence for a long period of time, this ability to know the family and the family’s values, including relationships between the generations, is very important in carrying on that family culture to future generations. It also helps to have a trustee who shares your world view.
Of course, trustees have to be of legal age and sound mind in order to serve as a trustee. Plus, a trustee’s job involves some technical duties, such as tax filing and accounting, but for the most part, it requires the ability to make decisions. You want someone who can deal with issues on a practical level and someone who can bring life experience to bear. What you don’t want is someone who will spend $5,000 to get advice on a $1,000 decision.
Ability to cooperate
In many cases you will choose to have more than one trustee serving at a time. It is important that trustees are willing and able to cooperate with each other in order to fulfill the purpose of the trust. Someone who is unwilling to listen and discuss issues honestly and openly may be a bad choice for trustee.
Willingness to seek advice
In today’s world, a trustee needs to make decisions involving accounting, investments, law, tax and other areas. Being an expert in each of these areas is just not possible. So a good trustee will seek advice from other experts. Look for a person with a history of seeking competent advice and making good decisions based on that advice.
A good trustee will have some financial experience. They do not need to be expert investment managers, as that skill can be purchased. What is important is for a trustee to be able to listen to investment advice and be able to determine when that advice is sound or not. The fiduciary obligations required are a legal commitment to you and your family.
Legal age/competency/US citizen
In some cases, you will want to make sure that your trustee (or at least one of them) is a US citizen. Naming a non-citizen as a trustee can create income tax problems as well as estate tax problems. If you intend to name a non-US citizen as a trustee, know that in most cases, adding a US citizen as a co-trustee will solve these problems. Airplane owners, for example, should know that in order to register an airplane in the US, the FAA requires that the owner be a US citizen. Likewise, if an airplane is owned by a trust in the US, at least one of the trustees must be a US citizen.
Willingness to serve
Of course, it is important to pick a person who is willing to perform the duties of trustee. In many cases, you are not legally required to inform a person that you have named them as your trustee, but it makes sense to do so nonetheless. If for no other reason than to determine that they agree to take on the responsibility.
Consider too, that if one trustee cannot serve when the time comes, a successor trustee will take over. Be sure to give as much thought to your successor trustees as you did to your primary trustee! Even the best laid plans can go wrong, but thinking through how your trustees measure up will always give you (and your trust) the best chance for success.
If you have questions about The Best Trustee for your Estate Plan, Contact Orlowsky & Wilson for a No Cost consultation.