For many couples and individuals, estate planning involves the use of a trust. For couples with children, a minor’s trust is often advisable. For many elderly, a fully funded trust helps manage assets during life, and then those assets transition after death. For high net worth individuals and couples, life insurance, charitable and other trusts are often beneficial strategies to minimize taxes. For all who utilize a trust as part of an estate plan, one of the single most important and often difficult decisions to be made is the selection of a Trustee. Commonly, in revocable living trusts, individuals appoint themselves as the Initial Trustee. However, a Successor Trustee must also be named to act in the event of incompetency or disability, and certainly to act upon death.
Corporate Trustees are an obvious option. They are in the business of professionally managing and administering trusts, and are bonded and/or insured. Corporate Trustees are efficient and detailed in accountings and reports. On the other hand, family members occasionally complain that they find dealing with a trust officer to be impersonal and cold, as the trust officer may lack detailed information and insight into the family and their dynamics. Family members are also distressed if a request for a discretionary distribution has to be reviewed not only by the individual assigned trust officer, but also by a committee.
The other common source of Trustees or Successor Trustees are individuals selected to serve. In our litigious society, fewer individuals are willing to serve for fear of liability. It is important when considering an individual as trustee whether he or she possesses the skill or knowledge necessary to manage and invest trust assets properly. Individuals can hire attorneys and accountants, tax and investment advisors to assist them with the trust administration. Again, however, fewer individuals are willing to act as a Trustee and select, retain and manage the necessary team of advisors to act as a Trustee. It is never advisable to name a friend, loved one, etc., as a Trustee without their advance knowledge and consent.
More and more, a blended approach is utilized in Trustee selection. Individuals and Corporate Trustees can be appointed as Co-Trustees. Their respective duties or powers may be limited or divided such that the Corporate Trustee is responsible for management, investment and filing of tax returns, etc. At the same time the individual Co-Trustee may be designated to determine if discretionary distributions should be made, or if non-productive tangible personal property should be retained or sold. Other divisions or limitations of powers are certainly possible.
Trusts are wide ranging in variety and may be simple or complex. There is no doubt that trusts regularly are utilized as an important tool in estate planning. The selection of the Trustee, or at least a Successor Trustee, is a critical issue for individuals and couples. Corporate Trustees and individuals each have potential positive and
negative aspects to be considered. Particularly, when considering individuals, none of us may have the same options as someone else. Sometimes a blended approach with Co-Trustees is the best choice. No matter what the decision, the selection of a Trustee is critically important.
Anne Hensley Poindexter, Partner
Campbell Kyle Proffitt llp