In my last post, I discussed some of the reasons why my clients choose to create trusts. One of the most difficult elements in creating a trust is choosing the trustee. Choosing the right trustee depends on the client’s situation and the purpose of the trust.
Some clients have minor children they want to protect. Some have assets they want to preserve for future generations. Some want to avoid probate and the inventory that accompanies the process. Some are elderly and creating trusts to help ensure they have sufficient funds and benefits should they need long term care. Others have children with disabilities and create special trusts that can ensure their child’s needs are met when they pass away.
In each of these scenarios, you have to consider who is going to be the best person to manage the trust. A trustee has specific duties, responsibilities, and limitations:
- A trustee must follow the instructions in the trust document.
- A trustee cannot mix trust assets with their own.
- They must keep separate checking accounts and investments.
- A trustee cannot use trust assets for their own benefit unless the trust authorizes it.
- A trustee must treat trust beneficiaries the same; they cannot favor one over another unless the trust allows it.
- Trust assets must be invested in a prudent (conservative) manner, in a way that will result in reasonable growth with minimum risk.
- A trustee is responsible for keeping accurate records, filing tax returns and reporting to the beneficiaries as the trust requires.
When choosing a trustee, let the nature of the trust guide you. For example, if you are creating a trust for your children you can name the guardian as the trustee for the sake of simplicity but consider whether that guardian is a prudent investor and capable of managing separate accounts, fulfilling the additional duties required. Some people make great guardians for your children but there may be another who would be better suited to the role of trustee.
If the trust is created for the benefit of an elderly family member or a member with disabilities, you might want to consider a corporate trustee or a pooled trust. The trust would then be managed by professionals who understand the requirements imposed by federal and state benefit programs to ensure that the trust does not endanger access to those benefits.
Choosing the right trustee is a difficult but necessary part of many estate plans. Talk to your estate planning attorney about choosing the best option for you and your family.