Initially, developing an estate plan can seem overwhelming. However, having a plan in place will reduce anxiety for you and your entire family. Before you start worrying over who gets Grandma June’s antique vase, take a step back and consider who should be in charge.
In today’s estate planning environment, the majority of high net worth individuals hold their assets in a revocable trust. Therefore, naming the trustee of these assets plays a critical role in ensuring they are properly distributed.
The Trustee During the Grantor’s Life:
During the grantor’s life, the trustee is almost always himself/herself. After all, if your investment accounts are titled in the name of your trust, you want the power to choose investments and oversee distributions.
Grantors who are married might want to consider adding their spouse as a co-trustee of the revocable trust. This provides ease of administration during periods when you are unable to act, such as incapacity or travel.
The Trustee Upon the Grantor’s Death:
Upon death, your estate plan kicks into gear. A new trust may be created for your surviving spouse. If you do not have a surviving spouse, a new trust may be created for your children or other beneficiaries. Many choose beneficiaries to serve as trustee. While this may initially make sense, you must stop and ask yourself whether this is the best choice. Let’s consider the characteristics of a successful trustee to help make this decision:
- Organized: The trustee is responsible for administering the terms of the trust instrument, coordinating investments, making distributions to beneficiaries, and filing notices, tax returns, and accountings. You must be able to trust him/her to do all of this in an organized and timely manner.
- Communicative: If the trustee is not the sole beneficiary of the trust, he/she will be responsible for communicating with the beneficiaries. A strong relationship between these parties is necessary. Additionally, the trustee must communicate with third-party providers such as attorneys, accountants, investment advisors and custodians.
- Willing to Employ Experts: Trustees are not required to be experts on trust administration or investments. However, they must be willing to employ experts in these areas when necessary and be able to rely on these experts for counsel. For instance, an accountant might need to file tax returns or an investment professional ensure the trust’s assets are invested in a manner consistent with the terms and purpose of the trust.
- Fiduciary: Trustees are fiduciaries. They are entrusted to carry out the terms of the trust and act in the best interest of the beneficiaries. Trustees must be honest and must act with integrity. Before naming a trustee, the grantor should make sure that there are no potential conflicts of interest with the beneficiaries. You should also ensure that the trustee has his/her own financial resources to discourage misappropriation of the trust assets.
When choosing a trustee, remember to think about the present AND the future. If you were to pass away tomorrow, would your beneficiary be able to serve as your trustee? Are your children mature enough to make these decisions? Is your spouse or your designated trustee organized enough to manage the trust?
If the answer is yes, then name them. If the answer is no, do they just need time to learn? If so, consider a “training wheel” period where the beneficiary serves together with a co-trustee before he/she becomes the sole trustee. The co-trustee can be an experienced individual or a corporate trustee. This “training wheel” period will allow the beneficiary (as co-trustee) to learn about his/her role as trustee and to eventually step into that role with confidence and the appropriate preparation.
Every family is unique. For some, family members are the best trustees. For others, a third-party makes more sense. Regardless of the situation, if you believe the trustee is organized, communicative, willing to employ experts, and acts as a fiduciary, your estate plan will be well-executed. As your Family CFO, we are happy to guide you through this process.