Creating a successful estate plan requires you to make a number of important decisions. If you elect to incorporate a trust into your comprehensive estate plan, one of those decisions will involve the appointment of a Trustee for your trust. Because naming the wrong person as Trustee is among the most common causes of a trust failing, it is imperative that you take your time and choose the right person for the position. Here are some tips to ensure that your Trustee is the right person for the job.
How Does a Trust Operate?
A trust is a separate legal entity that owns and holds property for the benefit of one or more beneficiaries. A trust is created by a Settlor, also referred to as a Grantor, Trustor, or Maker, who transfers property to a Trustee appointed by the Settlor. The Trustee holds that property for the trust’s beneficiaries. All trusts fit into one of two categories – testamentary or living (inter vivos) trusts. Testamentary trusts are typically activated by a provision in the Settlor’s Last Will and Testament and, therefore, do not become active during the lifetime of the Settlor. Conversely, a living trust, as the name implies, does activate during the Settlor’s lifetime.
What Does the Trustee Do?
The primary reason that people often appoint the wrong person as their Trustee is that they do not have a firm grasp of the breadth and complexity of the duties and responsibilities of a Trustee. The overall job of a Trustee is to protect and manage trust assets while administering the trust using the trust terms created by the Settlor. The specific duties and responsibilities of a Trustee makes for a long list. This list includes everything from investing trust assets to keeping detailed records to resolving conflicts among beneficiaries. The power and authority a Trustee has means that the Trustee contributes directly, and critically, to the success – or failure – of a trust. Given how important the Trustee is to the ultimate success of your trust, care should be taken when deciding who to appoint as your Trustee.
Characteristic of a Good Trustee
A common mistake Settlor’s make is to appoint someone close to them as their Trustee without given serious consideration to whether that person has the necessary background and temperament to be a successful Trustee. When you are considering an individual as a possible Trustee, take the time to evaluate him/her using the following characteristics of a good Trustee:
- Experienced – experience in the financial and/or legal field will go a long way toward successfully administering a trust given that the Trustee’s job involves investing trust assets and understanding the laws that apply to trust administration.
- Conflict resolution skills – if your trust includes more than one beneficiary, a conflict among the beneficiaries may arise at some point. Having a Trustee who can resolve that conflict without the need for litigation is an excellent benefit to the trust.
- Neutrality – your Trustee should not have any conflicts with the trust beneficiaries. If the Trustee already has a significant personal relationship with a beneficiary, this can often lead to a conflict of interest that can harm the trust because your Trustee should remain neutral.
- Detail oriented – a Trustee is responsible for keeping detailed records of all trust business so appointing someone who has experienced with keeping similar records is always a plus.
- Respectful – if your prospective Trustee someone who will respect your wishes and work diligently to fulfill your stated trust purpose, even if he/she doesn’t agree with the purpose? A good Trustee must follow the trust terms as written, whether he/she agrees with them or not.
- Willingness – it is surprising how many Settlors appoint Trustees without first discussing the appointment with the Trustee. Always ask your future (hopefully) Trustee if he/she is willing and able to serve in that function before making the appointment official.
Contact Sacramento Trust Administration Attorneys
Please download our FREE estate planning checklist. If you have additional questions or concerns about appointing a Trustee, contact us at the Northern California Center for Estate Planning & Elder Law to find out today by calling (916)-437-3500 or by filling out our online contact form.