There are many decisions to be made during the estate planning process, but one that deserves significant attention is who should serve as successor trustee of your trust. Generally, this comes up when you have a revocable trust of which you serve as your own trustee during your life. Upon your death or incapacity, your successor trustee will step in to administer your trust. There are many other trust structures and instances to name a successor trustee, but this scenario is a very common one.
Qualities of a good successor trustee
A good starting point is to determine what qualities are important to you when thinking about your trust, its assets, your family and beneficiaries, and how you expect things to be managed when you can no longer manage things yourself. While everyone will have some unique qualities they value in a successor trustee, at a minimum, consider the following:
- Reliability – Consider someone who follows through, doesn’t procrastinate, and is good with deadlines.
- Trustworthiness – Choose someone who will follow your wishes and be honest and truthful in how they manage your assets. This should also be someone who either has similar values or knows and respects your values on a deep level.
- Availability – Think about the day-to-day lives of people you are considering naming. People frequently don’t realize how much work and how time-consuming trust administration can be. Make sure you choose someone with the bandwidth for the job.
- Location – While there may be some situations that would be easier if handled locally, for the most part, it is not critical for a successor trustee to be local.
- Legal/Financial experience – If you have someone with legal or financial experience in your life, they may be the perfect selection. However, specialized experience is not required because the successor trustee can always consult with others to help. The most important thing is to ensure you choose someone who will ask for help if they need it.
- Peace of Mind – Consider someone who you trust, who knows you, and who you have such a deep level of confidence in them that you have no stress or anxiety surrounding the decision.
These are just suggestions. Brainstorm what qualities are important to you before you start thinking about who you should name. Often, the perfect candidate becomes clear when you focus on the qualities. It can be harder to start with a person and then decide why they aren’t a good fit.
Should you choose a child as your successor trustee?
Sometimes the obvious choice is to name your child as successor trustee. There are many things to consider when making this decision. However, only choose a child or children if they possess the qualities that you value in a successor trustee. If you have multiple children, you also need to consider whether to name one child or multiple children. There are pros and cons to consider for each option.
The Pros and Cons of Naming One Child as Successor Trustee
If you only have one child, this decision may not be as involved, but if you have multiple children, there are pros and cons to choosing one child to serve alone or multiple children to serve together.
There are many benefits to having one child serve alone. First, the administration process will likely be more efficient if only one child is serving. Many decisions must be made and the process is faster if multiple kids don’t have to work together to reach an agreement before moving forward with a decision. The same is true when dealing with outside parties. If four children are named as co-trustees, then all four children will have to sign documents throughout the administration process – unless the document provides otherwise. This can become very frustrating and inefficient.
Second, you can avoid issues like gridlocks between co-trustees. If multiple children are named and can’t reach a decision – either unanimous or majority – then sometimes the only way to solve a gridlock is to get the court involved. This is both expensive and time consuming. This issue can be mitigated by drafting provisions into the document to handle this situation, but nevertheless it issomething to be aware of and mitigate.
Third, you may consider having one child serve depending on life experience or situations. For example, one of your children may have a financial or legal background. That child may be perfectly suited for the role and able to perform the duties with little outside help. The opposite may be true though. You may have a child with the appropriate skillset, but it’s important to make sure they have the bandwidth to perform the trustee duties required. For example, you may have a child with a legal background, who is working 90-hour weeks in a large law firm while also raising several small children. Obviously, that child may be more than capable of balancing everything, but it’s worth considering whether he has the desire to serve or the time to devote to trust administration. On the other hand, you may have a child with no relevant background who has the time, capacity, and desire to administer your trust. This child may be the perfect option. This example is simply to illustrate that sometimes the best choice it not the obvious choice, so its important to consider all the facts before making a decision.
There are situations where naming multiple children works perfectly, but this is usually the exception, not the rule. Just because children get along now doesn’t mean they always will. These scenarios are just examples of things to consider when deciding whether to name a child or multiple children. Think about all the options and talk to your children during planning process. Do they want to serve? Could they serve together? Consider having these conversations in a group setting and one on one with each child.
Should you choose a third party to be your successor trustee?
Whether you have children or not, sometimes the best option may be a third party – a relative, friend, or professional fiduciary. Depending on your age or other factors, a sibling could be a good choice to serve as successor trustee. However, most people are looking for someone they are sure will survive them. In that case, a younger friend or family member possessing the qualities described above may be a good option.
In other instances, the best option may be an unrelated professional fiduciary. In some states, there are professional fiduciaries who serve in this role. This is an individual whose job is to serve as a trustee or power of attorney for non-family members. The rules for professional fiduciaries are state specific, and some states require these professional fiduciaries to be licensed. There is a fee involved with their services, but you get someone who knows what they are doing. One problem with choosing a professional fiduciary is survivability. You may have a great option, but if the professional fiduciary predeceases you, you will be left with the same problem you would have if you named a sibling who predeceases you. Even if they have a good succession plan in place, you cannot guarantee that you will approve of the person they choose to carry on their business obligations.
Should you choose a corporate trustee to be your successor trustee?
Sometimes the best option is to name a corporate trustee. Corporate trustees offer expertise and efficiency in trust administration. However, every corporate trustee is different. It’s important to understand what each corporate trustee offers. For example, many corporate trustees will not accept unique assets, including real estate. If you have unique trust assets, some corporate trustees may not keep and manage your assets, but will likely sell them once they are serving as successor trustee. Corporate trustees also charge a fee for services, but like a professional fiduciary, you will receive expertise and efficient administration. Frequently corporate trustee fees turn out to be cheaper overall than choosing a family member who has to pay for professional advice while serving. A corporate trustee may be a good option if you will have unique assets, a special needs trust, a beneficiary who may not be ready to manage his or her own assets, a complicated tax structure, a desire to remove the burden from a friend or family member, or just for the convenience of efficiency and peace of mind during the administration process.
If you want to learn more about corporate trustees, check out this article providing advice about things to be aware of when considering corporate trustees. If you want to learn more about First Covenant acting as your corporate trustee or hear about other ways we can assist your family during the planning process and beyond, please reach out and set up a meeting with us.