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A "Peace of Mind" Guide to Appointing the Right Trustee for Your Living Trust and Estate Plan.

A "Peace of Mind" Guide to Appointing the Right Trustee for Your Living Trust and Estate Plan.

June 01, 2023

Making the Right Choice: A "Peace of Mind" Guide to Appointing the Right Trustee for Your Living Trust and Estate Plan.

Choosing who will be serving as trustee of a trust for your estate plan is one of the most crucial decisions you will make during estate planning. The right decision can greatly impact your heirs’ future and ensure that your assets are managed according to your wishes. While a friend or family members might seem like obvious choices to manage the trust, there are many factors to consider, including trustworthiness, financial expertise, and potential conflicts of interest. Corporate trustees also bring their own set of considerations, such as fees and experience levels. Selecting a trustee is a significant decision, and it's essential to consider eight crucial questions when making this choice. This guide will help you choose the right trustee by guiding you through these questions. 

There are also great tips on how to make this decision confidently.

1. Does the potential trustee possess financial expertise and understand their fiduciary duty?

While age and relationships are important factors in selecting a trustee, their money-management abilities should not be overlooked. Trustees are responsible for overseeing prudent financial decisions related to trust assets and may need to manage business interests or other types of property effectively. To ensure that your assets are well-managed, it’s essential to select someone with financial acumen who can confidently handle the responsibilities that come with being a trustee after you pass away.

Consider asking potential candidates about their experience serving as a trustee, money and property management. Whether they feel comfortable being responsible for impartially managing your assets. If they lack some necessary skills but excel in other areas (such as maintaining strong relationships with beneficiaries), it may still be worth considering them as an option if they have access to professional advice when needed.

2. Should I consider naming co-trustees and successor trustee?

If a candidate lacks experience but has strong ties with heirs or family members, appointing a co-trustee may be beneficial. Co-trustees must act unanimously and provide checks-and-balances in decision-making processes regarding trust administration matters like investments or distributions.

However, conflicts between trustees can lead to difficulties in administering the trust efficiently and effectively - emotional disputes between family members may cause unnecessary delays or even legal battles. When considering co-trustees, ensure they have a history of cooperation and are committed to working together for the benefit of the estate.

3. When should I hire a corporate trustee, trust company, or an accountant (CPA)?

Corporate trustees like banks, trust companies, or full-time individual trustees may provide continuity and better handle certain conflicts of interest than non-professionals. Banks usually have a trust department dedicated to serving as a trustee and fulfilling the terms of the trust written in the trust document.  They can also preserve family relationships by managing potentially contentious family dynamics impartially. Corporate trustees are well-versed in navigating complex financial scenarios, ensuring that your estate is managed legally and unbiased.

Hiring an institutional trustee might be the best option if you anticipate potential disputes among beneficiaries or if the administration of your estate requires specific expertise (such as management of sizable assets). Consider speaking with an estate planning attorney for guidance on when hiring a trusted professional to be the trustee would be appropriate.

4. Which type of corporate fiduciary should I choose to appoint a trustee?

When deciding which type of bank or trust company to select, consider factors such as trust size, complexity, and fees. Banks are generally suited for larger trusts ($5 million+) since they have vast resources to manage substantial estates effectively. Trust companies or private fiduciaries may be more appropriate for smaller trusts ($1 million - $5 million), offering specialized attention without the higher fees sometimes associated with large banking institutions.

Before deciding on a professional trustee, research their fee structure and reputation within the field to ensure you’re making an informed choice that aligns with your needs and preferences.

In addition to these four essential questions, it’s important to bear in mind several other considerations:

5. Assess their communication skills to choose the right trustee.

Effective communication between trustees and beneficiaries is crucial in minimizing misunderstandings and upholding transparency throughout the administration process. Selecting someone with strong interpersonal skills who can clearly convey information will build trust among all parties involved.

6. Determine their availability when using a trust to create your estate plan.

The role of a trustee can be time-consuming; therefore it’s important to consider whether potential candidates have the capacity to dedicate their time and effort to effectively manage your estate. Inquire about their current workload, ongoing commitments, and whether they can provide sufficient attention to your trust.

7. Ensure compatibility with beneficiaries when you choose a trustee.

To foster a harmonious relationship between trustees and beneficiaries, assess the compatibility of potential candidates with the heirs. While it isn’t necessary for everyone to be close friends, having open lines of communication and mutual respect will make administering the trust easier in the long run.

8. Be mindful of personal biases consider when choosing a type of trustee.

While choosing a trustee from within your circle may seem like a good idea, it’s essential to consider any personal biases they might have that could potentially influence their decision-making. Objectivity is critical when managing a trust, so selecting someone who can remain impartial is paramount.

In conclusion, selecting the perfect trustee for your estate requires careful consideration of various factors such as financial expertise, relationship dynamics among beneficiaries, and whether a professional might offer added benefits. By carefully weighing these aspects through asking essential questions and seeking expert advice when necessary, it’s possible to make an informed decision crafted around your unique situation.

Remember that ultimately, choosing a trustworthy party who will act in accordance with your wishes is the key to securing peace-of-mind knowing that your estate is in good hands and your heirs’ futures are well-tended.

About the Author:

Damon Paull is a Marine Corps veteran who has traveled to over 20 countries. As a financial advisor in Houston, Texas, he is passionate about helping business owners and individuals pursue their financial goals. You can connect with Damon and his team at: 703.362.5747 or DPaull@totuswm.com.