15th Feb 2016
Selecting a trustee is a big decision. In fact, selecting the person to carry out the provisions of your trust is one of the most important decisions you’ll make in your estate planning process. It’s impossible to make the right decision without fully understanding what it is your trustee will be responsible for doing.
Your trustee is the person or institution responsible for administering and managing the objectives and terms within your trust without court supervision. They responsibilities of a trustee includes:
- Reporting to and notifying beneficiaries
- Trust accounting and reports
- Estate and fiduciary tax return preparation and filing
- Management of property and investments
- Inventory and appraisal of assets in the trust
- Liquidation/sales of assets
- Making distributions to beneficiaries
Due to the great responsibility placed on a trustee, selecting the right trustee is extremely important. You may naturally look to family members or close friends when selecting a trustee, which is what many individuals do; however, prior to selecting your trustee there are a number of factors to consider.
Qualities and Characteristics
When you select a trustee, you should look for someone who is honest, trustworthy, organized, able to make decisions, stable, financially responsible and devoted. Being a trustee can take a significant amount of time and you want an individual who can devote that time and and energy on an impartial basis for the benefit of the beneficiaries. The importance of certain attributes will depend on your individual circumstance and needs.
Honest and Trustworthy
The person responsible for managing your trust will potentially be in charge of large sums of money and property. They will be need to demonstrate a high level of care over the trust property and do what is best for all beneficiaries involved. It is crucial that the individual you select is honest, trustworthy and has a high level of integrity.
Organized and Able to Make Decisions
Your trustee will have a number of decisions, some significant and others minor, to make regarding your trust. The individual you select could potentially make investment decisions, asset management decisions, decisions on advisers and judgment regarding conflicting interests. It will be important for your trustee to not only document these decisions, but also to keep record of any other decisions, changes or statements impacting the trust. You need to consider a person who is well-organized, emotionally mature and knowledgeable.
Stable and Financially Responsible
As mentioned earlier, the person responsible for managing your trust could potentially be responsible for large sums of money. You need to select someone who is stable and able to make sound financial decisions. If you select an individual who is not a professional, the person will not have a staff to internally audit them while administering the trust. With this system, the work of the trustee is not checked, which can lead to an audit or lawsuit if not done properly. If you have a professional involved with managing your trust, this can likely be avoided as they will closely monitor the process. Regardless of if you select a professional or not, the person you do choose as your trustee needs to be financially responsible.
Devoted and Flexible
Your trustee needs to be devoted to managing your trust. Administering a trust can be a long and daunting process. The person you select needs to be committed to their role as a trustee and dedicated to doing what is best for the beneficiaries.
A person can act as a trustee for a long time and because of this, things are bound to change. Specifically, you can almost guarantee changes in tax laws and goals of the beneficiaries. The trustee you select needs to be willing and able to make these changes. Select a trustee that is not averse to change and will serve in their role throughout the course of the trust.
Additional Benefits: Business Savvy and Tax Planning and Accounting Expertise
If you have a business in your trust, it’s extremely important to consider selecting a trustee with experience running that type of business. This can be a family member, business associate or professional adviser. The key is to find someone who is knowledgeable about your business and can make proper business decisions.
In addition to selecting someone who is business savvy, it may be wise to select an individual with accounting and tax planning expertise. The tax process can be complicated as it is filled with specific procedures, tax laws and compliance requirements. If the person you select to manage your trust does not have accounting and tax planning expertise, consider bringing in a third party such as a tax planning attorney to help with this aspect of the trust.
Selecting a trustee can be a very difficult and complicated decision. Before you select your trustee, consider your situation and what it is you personally need in a trustee. If you’re a business owner, your needs are different than that of a doctor. If you have five kids, your needs are different than that of an individual with zero children. Each individual situation is different.
Once you’ve evaluated what you personally need, review the qualities and characteristics listed above keeping in mind, your trustee will be around for a long time. Unlike an executor, who’s role lasts one to two years, a trustee can act in their role for multiple generations. Due to the long-term nature of the role, trustees are generally more willing to accept if they know they have other individuals to consult with such as legal professionals or members of your family. Your trust is extremely important so when you select your trustee, I recommend giving them all the resources possible to be successful in their role of administering your trust.
When you’ve finally selected your trustee, you’ll want to work with a legal professional to secure all documentation is properly in place. I have personally advised and counseled California trustees for over 23 years and the biggest piece of advice I can give is to start early. The early stages of planning are critical.
Call me directly at 1-714-385-0044 to schedule a consultation or email me.