Who Should I Name As Successor Trustee?
Trust planning has become more popular in recent years as a way for individuals or families to control assets while living, effectively avoid probate, and to provide how assets are to be distributed at death. Once a person or couple have decided to establish a living trust, a major decision to be made is who to name as the successor trustee. The trustee is the person, persons, or entity responsible for the management of the assets pursuant to the terms of the trust document. The individual or couple establishing the trust are typically the initial trustee or co-trustees, respectively. The successor trustee acts in the event that the initial trustee or co-trustees are either unable or unwilling to act or have died.
The difficult decision to be made when choosing a successor trustee is whether to choose a close friend or family member, or a professional or corporate trustee. Each of these choices have pros and cons and there is no one size fits all rule when determining who to name as a successor trustee. A few options are discussed below.
Family Member or Friend
It is not uncommon to name a family member or trusted friend to serve as successor trustee. In a general sense, the rule of thumb to go by if naming a friend or family member is that you must be comfortable with that person stepping into that role on that day, not potentially acceptable in the future. There are certainly other considerations when making this decision. Will this individual be willing to accept this responsibility? Will the appointment of this person lead to issues in the family or between your chosen successor and the beneficiaries?
Naming a close friend or family member can be a great option for smaller or moderately sized trusts that do not require a tremendous amount of expertise regarding financial management and taxes (including estate tax). The major downside to naming a friend or family member is that they may not have the knowledge or expertise needed to serve and can cause legal or tax issues due to mismanagement. An additional downside is that this person can pass away, potentially leaving a vacancy in the trustee position if no additional successors are named. Some of the major benefits include that a friend or family member may not a charge a fee, he or she can be a little more flexible in their dealings with the beneficiaries, and they will have a personal relationship with the beneficiaries. Also, if the friend or family member lacks the necessary expertise, he or she can always hire professional assistance as needed.
A corporate trustee is typically a trust company or trust department at a bank. These institutions can provide trustee services for decades, spanning several generations if necessary. In some instances, your personal bank with which you might have had a lengthy relationship will have a trust department to provide these services. They will have a professional level of knowledge and expertise as it pertains to investments, tax issues, and potential legal issues related to the administration of a trust. A major benefit to naming a corporate trustee is its ability to stay abreast of ever changing laws, especially tax laws, and it will strictly adhere to the terms to the trust document.
Naming a corporate trustee can have some negatives. The first of which is that they will charge a fee for their services. This fee is typically based upon a percentage of the trust. A corporate trustee may not provide the flexibility or personal interest a close friend or family member provides. The most important aspect of selecting a corporate trustee is to meet with a representative from the institution you are considering to make sure that the services are suited to your needs.
An additional option is to name a close friend or family and a corporate trustee to serve as co-trustees. This can allow for the individual to work with a professional to ensure all of the legalities are adhered to along with the personal involvement of the friend or family member.
Overall, there is no one size fits all rule when determining who to name as a successor trustee. If you would like to discuss your estate plan, trust planning, or potential changes to your trust, please contact our office to schedule an appointment.