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Trustee Issues

What Are a Trustee’s Responsibilities?

Who Should My Trustee Be While I’m Alive?

Can I Name More than One Trustee?

Can I Provide For Different Trustees Over My Trust at Different Times?

Whom Should I Select to be My Trustee After I die or Become Disabled?

Should I choose an Individual or a Corporation to Serve as My Successor Trustee?

Can I name Both Individual and Corporate Trustees as Co-Trustees?

What if the Trustee I Named Dies or Becomes Incapacitated?

We Have Great Trust and Faith That My Brother Will Make a Great Successor Trustee, But He Lacks Financial Experience. What Should We Do?

Can I appoint All My Children as Co-Trustees?

Does Every Trustee Have to Receive a Fee?

What do Trustees Charge?





Q: What Are a Trustee’s Responsibilities?

No duty under to the law is higher than the duty a trustee owes to the beneficiaries of a trust.  Trustees must follow the trust maker’s instructions to the letter.  They need to pay any debts owed and collect any assets payable to the trust.  In addition, they need to manage your assets, including business and other non-liquid property, by making important investment decisions that maximize returns while providing income and principal for the distributions specified in the trust, make distributions to your beneficiaries, and make sophisticated tax and legal decisions.  It is preferable that they be intimately familiar with the family’s dynamics and needs and with the specific background and needs of each of the beneficiaries.  Being a trustee can be a massive job.  As a result, most professionals recommend teams of trustees, or a co-trusteeship.

 


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Q: Who Should My Trustee Be While I’m Alive?

You can act as your own trustee, eliminating any professional fees.  Also, as your own trustee, you can keep the same control over your possessions and do anything with them that you want just as you did before creating the trust.  If you prefer, you can select your spouse, another individual, or an institution, such as a bank or trust company, to serve as your trustee or to serve as a co-trustee with you.

 


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Q: Can I Name More than One Trustee?

Yes. You can name as many co-trustees as you like.


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Q: Can I Provide For Different Trustees Over My Trust at Different Times?

Yes.  You can name yourself as its initial trustee, or yourself and your spouse as its initial trustees, and can name different people to serve as trustees upon any one or more of the following events:  the disability of you or your spouse, your death, the death of your spouse if he or she survives you, your beneficiaries’ deaths, incapacity, divorce or some other criteria.  You can name different trustees for different contingencies and remove and replace them in your trust instructions as you wish.

 


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Q: Whom Should I Select to be My Trustee After I die or Become Disabled?

A trustee should be someone you highly trust.  Your successor trustee should be a person (or persons) or institution that you have utmost confidence in; that you know is honest, good with financial matters, and familiar with your objectives; and that will carry out the distribution and administration directions and guidelines you have established in your estate planning documentation.  In addition, you need to make sure that the person, persons or institution will accept the responsibilities of being your trustee.  You should name several alternate trustees in case your initial choices should later choose not to act.


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Q: Should I choose an Individual or a Corporation to Serve as My Successor Trustee?

Each has advantages and disadvantages.  With a corporate trustee, a bank or trust company, you have the assurance of ongoing professional management and accountability.  However, this may cost your estate more in fees, and you are not likely to have the personal, individualized care that can be provided by a friend or family member who is familiar with the beneficiaries and their particular needs.  An individual trustee may find that the responsibility of managing assets and dealing with beneficiaries is more of a burden than expected when he or she accepted what was perceived as an “honor.”  In addition, there is significant fiduciary liability attached to the trustee’s management of assets and to the trustee’s decisions that impact the beneficiaries’ right to income and principal.  A beneficiary who feels improperly served might bring suit against the trustee, even though no wrongdoing occurred.  If you choose personal trustees, it is important that they have the time, knowledge, and skill required to both manage the investment of assets and deal with trust beneficiaries or the good judgment to seek the assistance of competent professionals.  Since any individual may become unwilling or unable to serve, you should name several contingent successor trustees, as well.


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Q: Can I name Both Individual and Corporate Trustees as Co-Trustees?

The appointment of co-trustees may be an option if the corporate trustee agrees to the arrangement (most readily do).  It also may be possible to name one or more individuals as trustees and an institution as investment manager.  It is important to determine what your objectives are with respect to the management of assets and their distribution to your beneficiaries before making these decisions.


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Q: What if the Trustee I Named Dies or Becomes Incapacitated?

Your attorney should draft your documents to allow for a contingent successor trustee or co-trustees to take the place of a named individual who is unable or unwilling to serve as trustee.  For example, a husband and wife name each other as initial co-trustees on each other’s trust and as guardian of their minor children.  The couple has a car accident in which the husband is killed and the wife is incapacitated.  As a result, neither is able to serve as trustee or guardian.  Because their attorney drafted their trust agreements and pour-over wills properly, the couple provided for this situation by naming a successor guardian and contingent successor trustees to make the financial decisions until the wife is able to resume making the necessary financial and administrative decisions.  It is also possible that the first set of contingent successor trustees may be unable or unwilling to serve, so it is prudent to name a succession of successor trustees to ensure the proper administration of your trust instructions.


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Q: We Have Great Trust and Faith That My Brother Will Make a Great Successor Trustee, But He Lacks Financial Experience. What Should We Do?

There are a couple of ways to handle this kind of situation.  You could name another individual or a bank or trust company to serve as a co-trustee with your brother as discussed above.  With more financial experience than your brother, you could delegate to the institutional co-trustee, in your trust, the financial decision-making authority.  A second alternative would be to name one or more “trusted advisors” to whom your brother could turn for input and counsel as he needs it.  In this instance, your brother would be the final decision-making authority, but you can include instructions in the trust document for him to seek counsel from these advisors regarding investments, distribution issues, guardian financial support, and so on.  These advisors would step in to assist your brother just as they have undoubtedly helped you while you’ve been in charge.  This type of planning also can relieve your brother of the anxiety of being the only decision maker and allow him to make better decisions.


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Q: Can I appoint All My Children as Co-Trustees?

Naming co-trustees is usually a good idea.  Naming all your children as co-trustees, however, may create a number of problems.   There may be too many children to transact business efficiently, and it could invoke sibling rivalry and “if you scratch my back I’ll scratch yours” thinking.  Generally speaking, if co-trustees are needed, you may want to consider individuals other than your children.


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Q: Does Every Trustee Have to Receive a Fee?

It is usually advisable to provide in the trust document for the “reasonable and customary trustee’s fee as permitted by state law” or to refer to an institution’s fee schedule so that the trustees will be encouraged to act and be compensated for their work.  If you have appointed co-trustees, it is usual for them to divide the trustee fee on the basis of the duties each fulfills.


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Q: What do Trustees Charge?

Each institution has its own fee schedule, and the amount charged under that schedule will vary depending upon the extent of the services that are provided.  In general, however, a trustee’s annual fee runs from .5 to 2 percent of the value of the assets being managed.  It is very common for family members and close friends who are named as co-trustees to forgo all or a major portion of the fees they would ordinarily receive.  However, in certain circumstances there may be income and/or estate tax benefits to their taking the fees.


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