How to Choose a Trustee For Your Family Trust

If you’re in the process of setting up a trust or if you’re reviewing a trust set up some years ago an important part of the process and worthy of careful consideration is who to choose to act as trustee of your trust. Typically you will be the first trustee but your chosen successor trustee will take over management of the trust when you are gone.

This person will be making all the decisions once you’re gone and ultimately the success of your plan is reliant upon the actions of the trustee. So, it’s important to pick someone with some knowledge and skills so that he or she will do a good job.

Here are some key qualities you should look for in an estate trustee.

Choose someone who can act as a fiduciary

If you are choosing a professional such as a corporate trustee, lawyer, financial adviser, accountant or other professional, that person should be a fiduciary. A fiduciary is someone with a legal (in addition to moral) obligation to put their clients’ interests first. Not all advisers consider themselves to be fiduciaries, and that leaves them open to conflicts of interest. They could, for example, move a client’s assets into funds that pay the adviser a commission but are not best suited to that client’s needs. The new fiduciary rule requires all advisors who work with retirement plans or provide retirement planning advice to consider themselves fiduciaries, but other financial advisors may or may not act as fiduciaries. The only way to know for sure is to ask the adviser.

So long as they commit to behaving as a fiduciary and possess the necessary knowledge and experience to be a good trustee (see the next section for more on this), any type of financial advisor will do — be they financial planners, lawyers, CPAs, or some combination thereof.

The right knowledge and skills

Whether a professional or a family member, your trustee will likely be called upon to make significant decisions about how to manage the assets within your trust. That person should have financial, real estate or business knowledge to be able to make informed decisions. At a minimum, estate trustees should have both investing and tax backgrounds; depending on the nature of the assets within your estate, other types of experience may also be required depending on the types of assets in your trust such as real estate. For example, if your trust assets are invested in the stock market, your trustee should have a good understanding of investing. If your trust owns real estate, your trustee should know something about real estate. And, a general knowledge of budgeting and long term planning will come into play each time a decision must be made involving distributions of trust income or assets.

More significantly, if your small business is part of your trust, the trustee should either have business management experience or have access to someone with such experience and instructions to consult him when making decisions about the business. If your trust assets are diverse, a good option is to appoint multiple trustees: a primary trustee with a good level of generalized knowledge, and one or two others with the specialized knowledge that your estate requires.

Plays well with others

When your trustee takes control of the trust, your family will be going through the pain and stress of having just lost you. If your trustee is insensitive or doesn’t get along with your beneficiaries, their emotional and financial burden will become even greater. So when evaluating potential trustees, weigh their interpersonal skills as well as their technical and financial skills. And consider bringing your beneficiaries along to meet the potential trustee and see how well they get along.

Longevity

Your 70-year-old uncle may be the perfect choice as a trustee based on the previous criteria, but is he really going to be around after you’re gone? When choosing a trustee, it’s best to limit yourself to people who are significantly younger than you are and in reasonable health. If you feel that you must name an older trustee, then pick a “successor trustee” as well — someone who will take the first trustee’s place if he or she is no longer available. Another option is to name a business, such as a law firm or financial firm, rather than an individual as your trustee. It’s far more likely that an institutional trustee will be available when you need it, but keep in mind that such trustees are generally more expensive than individual trustees, (and remember even uncle Fred is entitled to be paid for his efforts) often setting their fees to around 1% of the value of the estate (and if you run across a potential trustee who quotes a fee much higher than that, you should probably look elsewhere). Institutional trustees may also be limited by what they can and cannot do based on their internal company policies rather than your wishes.

Review your choices periodically

It’s a good idea to review your estate plan regularly and especially when significant life events occur. But in the case of the trustee, be sure to your review this choice too. The trustee you finally settle on may be the perfect person for the job now, but five years from now they may be unavailable, estranged from you, or otherwise a poor choice. It’s a good idea to review your estate plan on a regular basis anyway, because your wishes may have changed in many ways — so you should also reevaluate your trustee as a part of this process.

Beneficiaries as Trustees

The question often arises whether or not you should choose one of your children (often the elders), who will be a beneficiary of your trust upon your death, to manage the trust when you’re gone. This can place a significant burden on this person as he or she will be responsible for making decisions for siblings, nieces and nephews. This person may also be open to understanding influence by a beneficiary with a strong personality or one who may make unreasonable demands on the trustee. This often causes family disharmony and usually is not what you intended when you made this choice. Also, will your child have the requisite skills and knowledge to manage trust assets? Finally, can you trust that this child, or this child together with his or her siblings, simply won’t just distribute the assets to the family and forget about your wishes when you created the trust?

Choose Carefully

Choosing a successor trustee is an important choice and one you must make very carefully.