Although statistics show that the number of people who have an estate plan is not increasing, I do see a larger portion of individuals and couples making the decision to have a trust-based estate plan. That is, an estate plan where a trust is the main document that controls how things are distributed when they pass away. One of, if not the, most important decisions you make with a trust-based plan is who will be the trustee and who will be the backup (“successor”) trustees. The trustee is the person/people/entity that makes sure the terms of the trust are followed. Depending on the trust’s design, the trustee may have a large amount of discretion on who receives money/property from the trust, how they receive it, and when they receive it. Yet, in many cases, the decision on who will be the trustees/successor trusties is made hastily, without much thought.
This can be a big mistake! If you have done your planning correctly and fully “funded” your trust (e.g., transferred assets to it), your trust will have most (if not all) of your assets. Considering that the trustee will make certain decisions relating to the trust, the choice should not be taken lightly. The trustee should be someone you trust (no pun intended . . . ok, yes, the pun was intended). However, don’t stop the inquiry there. It should also be someone who has sufficient financial management and administrative ability (or is wise enough to hire professionals to handle those tasks for them). And consider the option of splitting the trustee role among one or more people/entities. For example, you could have a “distribution trustee” who determines when to make distributions, and an “administrative trustee” who keeps track of all the accounting, tax, and other detailed financial matters.
I recently had a conversation with a great client. She shared with me that her father had a trust set up and properly “funded” (I say bravo to him, because not “funding” the trust is the single biggest mistake I see when reviewing estate plans). He named a local bank as the trustee for distribution and administrative purposes. He set out several scenarios in his trust about how he wanted to provide for his children (education, businesses, homes, etc.). One of the main assets in the trust was stock in a certain company. Long story short, the stock dropped significantly in value and the trustee (the bank) would not sell it. It believed the stock would come back and that to sell it at the depressed price would violate the bank’s duty as trustee. This all happened about the time this client was supposed to be getting a distribution to help with education. She never did get the distribution for education (or much else for that matter). The good part is that she did a great job on her own and is quite successful today.
I’m not saying you shouldn’t consider a bank or trust company as a trustee, I give the example to show how important it is to fully consider the various options for who the trustee is. Each situation is different. That is why you need to make sure your estate planning attorney takes a client-centered relationship approach to your planning . . . not a transactional approach.