When creating a trust, a trustee is named to administer your trust assets as provided in the trust instrument and according to California law. Typically, you (and your spouse if you are married) serve as trustee of your trust until you die or cannot serve. Sometimes, selecting a successor trustee to serve after you are unable to do so is a critical and stressful decision. After all, it is your trustee who will take control of your assets, communicate with your beneficiaries, pay creditors, distribute property to the beneficiaries, and file tax returns, among many other duties. A trustee effectively “steps into your shoes” when you can no longer do it yourself. A tall order, no doubt!
Some people quickly assume their trustee should be their oldest child or a loyal friend. While they may be worthy candidates, it would not be wise to pick a trustee simply because of seniority or loyalty. Your trustee should get along with your beneficiaries, have financial experience, be dependable, and most importantly, be honest. In some situations, it is appropriate to appoint a professional trustee, such as a bank. Make sure to consult with loved ones and your attorney as part of the selection process.
After identifying potential candidates to serve as trustee, make sure your trust does not set them up for failure. For example, let’s assume your trust provides the following:
a) Upon your death, the trustee can make distributions to your children for health and education purposes for each child’s lifetime;
b) When all of your children are deceased, the trust assets will be distributed to their children (your grandchildren); and
c) Your oldest child is the trustee.
Although this scheme seems harmless, it has strong potential to create conflict between dueling family members. For example, your oldest child, may be seen as the “favorite” if chosen as trustee. They may experience a falling out with a sibling if a distribution of assets is viewed as unfair by one beneficiary. A child who doesn’t require distributions for health or education may feel slighted if other siblings receive substantial payouts for such needs. Likewise, this trust could incite your grandchildren to discourage the trustee from making distributions to your children, because every trust payment to a child means less money available for the grandchildren.
Examining potential problems in the planning stage will help you select the right person as trustee. If you anticipate any of the issues above, consider choosing a trustee without an emotional connection, such as a professional trust company, who can make decisions without being swayed by family politics. Perhaps your trustee should be a close friend that is familiar with your family dynamics, but is not a part of it. Of course, if you don’t foresee family drama surrounding your trust, a devoted child can be a great trustee. With a little foresight and proper planning, you can be confident the trustee you select will execute your wishes in a fair and proper manner.
By Robert Simpson, Esq.
© 2017 Noland, Hamerly, Etienne & Hoss