Like many people, you may find yourself including a living trust in your estate plan. If so, you will need to make several decisions during the creation of that trust. Among the most important of those decisions will be deciding who to appoint as the Trustee of your trust. Here are 10 questions to ask when choosing a Trustee for your living trust.
What Is a Living Trust?
A trust is a legal relationship wherein property is held by one party for the benefit of another. 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. Living trusts can be further broken down into revocable and irrevocable living trusts.
What Does the Trustee Do?
In broad terms, the Trustee of any trust is responsible for protecting and managing the assets held by the trust and administering the trust using the terms created by the Settlor in the trust agreement. Some of the specific duties and responsibilities a Trustee has include:
- Abiding by the trust terms unless they are impossible, illegal, or unconscionable
- Investing trust funds using the “Prudent Investor Standard”
- Monitoring trust investments
- Communicating with trust beneficiaries
- Resolving conflicts among beneficiaries
- Making discretionary decisions
- Distributing trust funds to beneficiaries
- Approving or denying distributions if given discretionary authority
- Keeping detailed trust records
- Preparing and paying trust taxes
Questions to Ask Yourself When Considering a Trustee
One of the most common reasons for a trust to fail is the Settlor appointing the wrong person as Trustee. Instead of appointing a spouse, adult child, or close friend without thinking the appointment through, take the necessary time to really evaluate a potential candidate. As part of that evaluation, ask yourself the following questions as they apply to the prospective Trustee:
- Does he/she have any experience and/or education in finance?
- Does he/she have any experience and/or education if the legal field?
- Is he/she good at conflict resolution?
- Is the individual free of any obvious conflicts?
- Will he/she honor the trust purpose?
- Does he/she live close enough to manage any real property held by the trust?
- Is he/she free of any employment and/or family obligations that will interfere with the duties and responsibilities of serving as Trustee?
- Is he/she financially stable which decreases the likelihood of mismanagement, or outright theft, of trust assets?
- Will he/she seek professional help when necessary?
- Is he/she willing to serve as Trustee?
If you find yourself answering “no” to several questions, it might be best to consider another candidate for the position of Trustee. A single “no” may not be enough to disqualify a prospective Trustee; however, it should give you pause. If you remain unsure about who to appoint as your Trustee, it might be time to consider appointing a professional Trustee to administer your trust.
Please download our FREE estate planning checklist. If you have additional questions or concerns about choosing the right Trustee for your living trust, contact us at the Northern California Center for Estate Planning & Elder Law by calling (916)-437-3500 or by filling out our online contact form.