A trust requires a few essential components, one of which is a trustee. The trustee performs a wide variety of functions within the trust, making the choice of trustee one of the most important decisions you make when you create your trust. Ultimately, only you can decide who to appoint as trustee; however, there are some factors that are worth considering when making the decision.
- Location of Trust Assets: This is a factor that is easy to overlook. Because your trustee must manage all trust assets, one consideration is whether your trustee is close to trust assets when those assets are tangible assets, such as real property.
- Paid or Unpaid Trustee?: The more complicated the trust and the more assets the trust holds, the more you should consider a paid trustee. A simple trust, however, such as a pet trust, may be better suited to an unpaid trustee. However, you should discuss the issue of compensation with your trustee to ensure that he or she will be willing to serve under the terms that you propose.
- Relationship of the Trustee to the Beneficiaries: People tend to automatically consider a close family member as the trustee. Although this can make sense based on the fact that you know the person and trust the person, stop and consider whether the person has a potential conflict of interest, or a financial interest, in the trust as a result of the relationship to a beneficiary or a bad personal relationship with the benefiaries. If this is the case, you may wish to consider appointing someone else as the trustee.
- Financial Ability and Experience: Regardless of whether you decide to appoint a paid or unpaid trustee, make sure that the appointee has the financial ability and experience to perform the required duties.
- Consider a Professional Trustee: Due to the nature and extent of trust assets and/or the complexity of relationships between the trustee and the beneficiaries, it may also be prudent to seek assistance of a trustee who is outside your circle of family or friends. Professional trustees, whether individual or institutional (e.g. a bank trust department), may be a better solution.
The best way to address this critical issue is to consult with an experienced and qualified estate planning attorney to discuss your concerns and goals. An attorney with those credentials will be able to guide to the correct decision and will have knowledge of the qualified professional fiduciaries in your community should that option be considered.
Timothy P. Murphy is an estate planning and elder law attorney whose practice emphasizes helping people to build, preserve and pass on their wealth. He works with his clients to accomplish their goals while avoiding unnecessary court proceedings and minimizing or eliminating exposure to death taxes.
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