Selecting a Trustee is not a decision that should be taken lightly. However, many people merely select a family friend or their eldest child without a second thought as to whether they are truly qualified and willing to handle the duties. In the context of Revocable Living Trusts, since the Grantor is usually the initial Trustee, the decisions that need to be made are usually in regards to who shall be the Successor Trustee(s). Here are a few factors should be considered when selecting a Trustee or Successor Trustee:
What qualities does the Trustee possess? For people with adult children, selecting the eldest child to act as Trustee is the default. It makes sense to them for the mere fact that the child is the oldest and that the child likely helped care for their younger siblings growing up. However, having seniority is not a prerequisite to being a competent Trustee. For example, the youngest child may be better suited to be the Trustee because of his temperament or perhaps he has an investment or financial background. Instead of merely looking at age of the potential Trustee, think about whether she has the qualities and skills that would allow her to succeed as Trustee. Some of these qualities include being detail-oriented, trustworthy, fair-minded, responsible and having good communication skills,
Will the Trustee have time? An overlooked factor that thwarts Trustees and sometimes gets them into trouble is not having enough free time to administer the Trust. Examine the life situations your potential Trustees are currently in. Is your selection juggling a demanding job and a busy family life? People often equate being Trustee to having a second job. It's not far from the truth. Of course, circumstances change, but it would be wise to consider the Trustee in their current situation and not extrapolate what their lives may be in the future. You can always amend your selections at a later date if a person is no longer suitable to act as Trustee.
Where is the Trustee located? With technological advancements, having a Trustee who is in close proximity to trust assets is not as big of an administrative hurdle as it was in the past, but it certainly makes the Trust easier to administer if your Trustee is nearby. And given our state's isolation, this is especially true for a Trust whose situs is in Hawaii. Consideration should be given to the cost an out-of-state Trustee will incur when employing agents to carry out the administration. This cost will likely be paid for out of trust assets, which will leave less for the beneficiaries. If some of your prospective trustees live on the mainland while others reside in Hawaii, thought should be given to how willing a mainland Trustee may be to administer a Trust located in Hawaii.
How complex and large are the assets in the Trust? If your Trust contains significant assets or is perhaps a legacy Trust that is designed to last multiple generations, you may want to forgo selecting an individual Trustee and opt for a corporate Trustee. While a corporate Trustee's fees will likely exceed those of what an individual may request, a corporate Trustee does have the institutional support and expertise to manage more complex Trusts. However, for Trusts that have assets of less than $100,000, employing a corporate Trustee may not be worthwhile monetarily since a corporate Trustee sometimes charge a minimum fee, which could be a sizable percentage of the trust assets.
How are the relationships between the beneficiaries? If you are aware of conflicts between your beneficiaries, naming one of them as Trustee may not be the wisest move. Other beneficiaries may resent the beneficiary you chose to act as Trustee and those feelings may balloon into costly legal battles. Sometimes beneficiaries will engage in petty bickering, but these distractions will be enough to make cause unnecessary stress for the Trustee, which may lead to additional problems. Therefore, if tension exists between your beneficiaries, whether it is underlying or overt, selecting an impartial, corporate trustee may help reduce the potential for litigation among the beneficiaries. If you're thinking about using a family friend as Trustee, consider the unenviable position he may be placed in when having to act as a mediator or referee to your beneficiaries.
Just ask. Finally, ask your prospective Trustees if they want the responsibility of being Trustee. Explain that administering the Trust and communicating with the beneficiaries will take time away from their own lives and pursuits. Ask if they'd be willing to make that temporary sacrifice for you. Making upfront disclosures to Trustees of their responsibilities will help mentally prepare them for the eventuality of being a Trustee.
Samuel K.L. Suen is an attorney based in Honolulu, Hawaii specializing in estate planning, probate, conservatorship and guardianship matters.
DISCLAIMER: All content and information is provided by The Law Office of Samuel K.L. Suen, LLLC and is for general informational and discussion purposes only and does not constitute legal advice. Transmission of this information is not intended to create, and receipt does not constitute, a formation of an attorney-client relationship. The information presented at this site is believed to be accurate when made, but may not be complete, is not updated, reviewed or revised on a regular basis. No representations or warranties whatsoever, express or implied, are given as to the accuracy, applicability or validity of the information contained herein. The information may be modified or rendered incorrect by future legislative or judicial developments and may not be applicable to any individual reader's facts and circumstances. You should not act or rely on this information without consulting with a licensed attorney.
To ensure compliance with requirements imposed by the IRS, please note that any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter that is contained herein.
Copyright © 2017 Law Office of Samuel K.L. Suen, A Limited Liability Law Company. All Rights Reserved.