Trustee Selection: Making the Right Choice

Whether you are creating or changing your living trust or estate plan, one issue always surfaces: “Who should serve as the successor trustee?”

Sounds like a simple question, but selecting the right trustee is a critical decision. While many individuals look first to a family member or friend, there are many compelling reasons to choose a trustee based on how well that person can carry out their responsibilities and how willing they are to do so.

The best trustees should be knowledgeable about investments, experienced in managing trusts, familiar with taxes and accounting, and have demonstrated business acumen. Trustees are often called upon to render important and impartial decisions and to communicate those decisions to all interested parties. In order to handle their numerous and varied responsibilities, trustees should posses a combination of skills and experience, including the ability to:

• Manage all assets, securities, business or real estate interests.
• Maintain detailed records and prepare statements of all transactions.
• Handle collections, distributions and payments.
• Prepare and file all tax returns.
• Communicate with and respond to all inquiries from beneficiaries.
• Using discretion, as permitted by the trust, advance trust principal or provide care for a beneficiary.
• Settle the trust, when applicable.

Many individuals who assume the role of trustee are unaware of the high standards that apply to this duty. They are often surprised to learn that when a trustee’s performance falls short of either the trust document’s directives or legal standards, the trustee may be held personally liable. For example, trustees may be held responsible for imprudent investment decisions, failure to invest or failure to minimize taxes, not exercising discretion or inappropriate allocation of assets. While trustees will often retain professionals to assist with specialized responsibilities such as investment management, recordkeeping or tax preparation, delegation of duties to a professional does not absolve the trustee of responsibility.

The best approach to selecting a trustee is to determine not only the person’s specific capabilities and knowledge, but also their willingness to serve. Two basic types of trustees can be considered: the individual trustee and the corporate trustee.

Individual Trustee – There are many attorneys and CPAs who are qualified to serve as successor trustees. Other than these professionals, however, few individuals have all the necessary characteristics and qualifications. Fewer still would take on the responsibility if they understood everything that was expected of them. The multifaceted role of a trustee can be time-consuming and onerous, especially for an individual unfamiliar with the responsibilities.

Corporate Trustee – Corporate trustees generally provide the continuity, expertise, impartiality and resources that an individual or group of individuals may not be able to offer.

Co-Trustees – Using co-trustees provides the advantage of combining trustees with different strengths. When considering co-trustees, remember that each co-trustee is liable for the other’s actions.

After working a lifetime to provide for your family and create a legacy, it’s foolish to risk jeopardizing your estate and the well-being of your beneficiaries. Choose a trustee who will treat both your estate and your beneficiaries with skill and care.

This article is for information and education purposes only and does not constitute a personal recommendation or take into account the particular investment objectives, financial situations or needs of individual clients. Clients should evaluate the merits and risks associated with relying on any information provided.