What tips should I consider in choosing a trustee?
With all of the uncertainty of where estate and gift tax law is headed, now is the perfect time to focus on an issue unaffected by the tax laws: Trustee selection. You spent your life accumulating, preserving and growing your wealth – who stands in your shoes when you can no longer act? A document can only go so far to protect your family and property – it is up to the trustee to implement the plan.
The Perfect Trustee is you. So what should you consider when picking a trustee to act for you? From years of drafting and administering gift and estate plans, I have a few novel suggestions to guide you in making a choice.
1. Divide and conquer: Different Trustees for Separate Trusts
Instead of naming a trustee to handle all of your property, consider a plan that segregates trust assets in various trusts with different trustees. For example, certain real estate – like family and vacation homes are better suited for family members as trustees. Venture fund interests, closely held stock or family business assets often require personal knowledge of the unique corporate environment as compared to the skills required to manage a stock portfolio.
2. Share the road: Cotrustees
It used to be an honor to be selected as a person’s trustee. Now it is a time-consuming obligation with fiduciary responsibility raised as a weapon by a disgruntled beneficiary. The alternative of “two-for-the-job” is sometimes overlooked as an alternative for clients. One trustee can offer financial savvy and the other maintains a close personal connection with the beneficiaries. The combination of a corporate and an individual trustee is often ideal. Requests for discretionary distributions can be handled in an objective manner and checks and balances operates to help protect trust assets.
3. You get what you pay for: Reward the trustee for taking on the task
A trustee is needed in the event of death or incapacity. You can no longer act to control things. This is not the time to get cheap and look for someone who would act for nothing. It used to be an honor to be selected as a person’s trustee. Now it is a time-consuming obligation with fiduciary responsibility raised as a weapon by a disgruntled beneficiary. The dignity and importance of the role is reinforced by the expected compensation.
4. The pivot: Adding flexibility to the document
Most trusts are drafted to last for successive lifetimes – parents, children, grandchildren – so it is best leave n out for unforeseen circumstances. If you trust a person enough to name a trustee, you should consider giving that person the right to alter the trustee succession. The power to remove and appoint trustees is an important power to include in a document to avoid court.
The trusteeship is important and often the hardest decision a client will make. Far from just some names to fill in the blanks, the success of the plan depends on them.