There are many benefits to putting your assets in a trust. However, if you set up a trust you have to appoint another person to manage the trust assets either now or in the future. This person is called the “Trustee.” The Trustee holds legal title to property for the person whom the trust benefits (the "beneficiary").
How Choosing a Trustee Works
The trust document prepared by the attorney names the Trustee. The Trustee can change as circumstances change. For instance, if you are signing a revocable living trust, it names a person to control the trust property while you are alive. In your lifetime, you can be the Trustee. The trust document also names a successor Trustee to take over after the original trustee dies or becomes incapacitated. The successor Trustee is a separate individual or independent professional trustee. Keep in mind, that this is not true for all types of trusts. Other trusts -- such as an irrevocable trust or special needs trust – require that you name a separate Trustee from the start.
Factors to Consider When Choosing a Trustee
To carry out your wishes, you should choose a thoughtful, meticulous and prudent Trustee. The choice is important because being a Trustee can be a difficult job.
The two most important questions to ask yourself when selecting a Trustee are:
- Does this person have the ability to manage the trust assets?
- Is this person trustworthy?
Does This Person Have the Ability to Manage the Trust Assets?
You should pick a Trustee who has experience managing the type of assets that the trust will hold. The Trustee should also have experience filing estate tax returns if the trust is funded at death. In the case of a special needs trust, the Trustee should have knowledge of federal benefits programs.
Being a Trustee is not a temporary job. It can last years, sometimes decades. You need to choose a person who can manage the trust for an extended period of time. You should also select someone who has the time to devote to day-to-day trustee duties. You also need to consider the Trustee’s health. Certainly, a person who is wise but is in poor health would not be a good person to appoint as Trustee.
The Trustee must be organized. The Trustee has to monitor the trust investments. The Trustee must file a yearly income tax return. The Trustee must weigh requests for funds and decide if the trust document allows the requested distribution. The Trustee must write checks. Every year the Trustee must provide an annual accounting to beneficiaries of the trust. The accounting would include the assets and liabilities of the trust as well as its income and expenses. Trustees of trusts created under a Will must file an accounting with the local Probate Court every 3 years unless the Will waives the duty to file an accounting.
Is This Person Trustworthy?
Your experience with the prospective Trustee can help determine whether the Trustee is trustworthy. A person’s trustworthiness is comprised of many personality traits.
The Trustee has a duty to manage the trust in the beneficiary's best interest. A good Trustee is someone who can think logically and rationally and not be swayed by competing agendas. The Trustee also needs to be able to do what they think is in the best interest of the beneficiary, even if the beneficiary does not agree with the Trustee's decisions.
The Trustee must have good judgment. They must be able to gather and weigh all the pertinent information before making important decisions. The Trustee may retain a lawyer, accountant and financial advisor to assist with those decisions.
Who Can Serve As a Trustee?
Any person over 18 years of age and capable of managing his or her financial affairs can serve as a Trustee. An attorney, accountant, financial adviser or other professional may serve as an independent trustee. Many financial institutions provide trust services. In addition to being independent, a professional trustee usually has experience and expertise managing trust property and preparing trust tax returns.
Can You Change the Person Who Is Trustee?
You can change who is Trustee. You can simply write a letter to the Trustee exercising your right to change Trustee if the trust allows it. If the trust does not allow you to change the Trustee, you can file a motion to remove the Trustee in the court with jurisdiction over the trust. The court will expect you to propose a new Trustee.
Whomever you choose as Trustee, you must review your choice of Trustee every few years. The person who is right today may not be right tomorrow. You may no longer agree with the distribution decisions of the Trustee or have a concern regarding the Trustee’s investment performance. The fees of the Trustee may no longer make sense given the value of the trust assets.
The attorneys at Cipparone & Zaccaro, PC can help you determine who is the best Trustee for you and your trust and assess Trustee performance.
