For the last 25 years or so, I have been drafting trusts for my clients as part of their estate plan. One question that always surfaces is who is best suited to be the successor trustee of a client’s revocable living trust. The question comes up a lot so I decided to give my thoughts on choosing a successor trustee.
- Don’t automatically choose the eldest son or daughter. Primogeniture was abolished with the middle ages but many parents automatically think that their eldest son or daughter should inherit the job.
- If you are going to choose one of your children to be your successor trustee, choose the child that pays attention to details. Trust administration is difficult, The successor trustee must work closely with the attorney and CPA, file tax returns timely and prepare trustee reports. Nothing aggravates siblings than a trustee who does not timely move through the process.
- Choose someone as trustee who communicates well with the beneficiaries. Lack of communication creates suspicion that the successor trustee is somehow feathering his or her own nest. Regular updates on the status of the trust administration and expected timelines for sale of assets and partial distributions can go a long way to keeping the process moving and the beneficiaries happy. This can be the formal trust annual accounting but also regular email updates. When something is going to be delayed let the beneficiaries know and why.
- Don’t choose a trustee who has or had financial problems. Prior bankruptcies and foreclosures are red flags that the trustee can not handle money well. There is always a temptation to find a way to dip into the till and justify their actions – such as they took care of Mom or Dad by themselves and that the other siblings are not grateful.
- Don’t choose co-trustees that don’t get along with each other. Some parents think that naming both of their children as co-trustees will solve that problem. It doesn’t and it often leads to a permanent break in the relationship after the trust administration is over. It can also make the legal and accounting costs a lot higher as more meetings are required.
- Don’t choose a family member that has the business skills or training to be a trustee but is too busy to do the job correctly. I have seen families choose professional sons or daughters who are lawyers or accountants but never have time for the family’s needs. If that is the case, then consider co-trustees who are willing to delegate duties to each other to keep the trust administration moving. One can do the financial reporting and the other can get the house cleaned out and ready for sale.
- Consider using a professional trustee or a financial institution. Some clients have no family members that they can envision doing a good job as trustee. Others have complicated business and real estate investments that really requires someone to professionally manage the estate and “land the airplane” successfully. Yes, it costs money to hire a professional trustee (usually 1% to 1.5% of the value of the assets annually) but there are times when those fees are well spent and they can help to preserve the estate.
- Consider whether the trust administration will be over in 6 months or a year or whether there are long term trusts that go on for decades or more. The skills required for a long term management of a trust are different that what is essentially a probate substitute. Hiring a good financial advisor, and a money manager can be crucial to the success of a long term trust for a child or grandchild.
- Make sure the successor trustees will be around when you need them. If they are too old or ill, they may not want the burden of being a trustee and resent the fact that they agreed to do so in a moment of weakness. Give the trustee an out if the work becomes too burdensome even if they are otherwise competent.
- Pay your trustee. Most new trustees say they do not want a fee to be a trustee for their parents estate. If the trust administration is at all complex, they regret that decision later. Someone has to do the job and you want them to take your trustee work seriously! A $10,000 fee for a family member to administer a trust of $1 million to $2 million is very reasonable.
- Choose a successor trustee that will have your health and well-being their primary concern. Remember that a trust is used not only to avoid a probate or for tax planning but to assist you and your spouse in the event of diminished capacity. Care costs are going up and some trustees will skimp on care for mom and dad so that there is more left over for themselves and their siblings after death.
While attorneys can draft excellent trusts to carry out your wishes and for tax planning, they are only as good as the trustee who will administer them. Give some serious thought to who you will choose as your successor trustee.
Rob Le Chevallier
Rob Le Chevallier practices business law, business formation, estate planning, trust administration, real estate law, and corporate financing at Buckley Law P.C. He particularly focuses on the estate planning needs of business owners and other high net-worth individuals and their families. He is an attorney and shareholder at Buckley Law and is licensed in Oregon and Washington.
The information contained in this article is for informational purposes only and does not constitute legal advice. This information is not intended to create an attorney-client relationship, and the receipt or viewing of it does not create or constitute an attorney-client relationship. You should not act upon any information contained in this article without consulting an attorney for individual advice regarding your own situation.