Pick a Trustee You Can Trust

QUESTION:

I want to set up an irrevocable trust to take care of my needs as I age, and I need to pick a trustee. What should I consider?

ANSWER:

A trustee has many responsibilities, one of which is making distributions from the trust to you, the beneficiary. Many people want their children or a lifelong friend to serve in this role. These are the people you trust the most. They have an emotional investment in seeing to your needs. While trust is critical, there are other important factors.

The trustee has broad responsibilities, including making distributions per the trust document and trust law, managing the investment portfolio and filing taxes. If distributions are made inappropriately, or not documented properly, significant estate and creditor protections can be lost. The trustee can hire experts to help but they need to be sophisticated enough to understand the advice.

The trustee’s personal situation and history also need to be considered. A trustee close to you in age may run into problems as he or she ages. A trustee with family, marital or career issues might not have time for your needs. If your children are involved, it gets even more complicated. If you have two children, and they are married, you potentially have four different personalities guiding your trust, and it only takes one of them to create a conflict.

Another option is a corporate or professional trustee. They usually are good at investing prudently, following the trust document, filing taxes and making certain all decisions are well documented. One disadvantage is the trustee might be somewhat removed from your personal situation and slower to respond to your changing needs.

A popular option is a combination of the two. Have a corporate trustee and personal trustee serve as co-trustees. The personal trustee serves to help the corporate trustee understand your needs, especially in the case of discretionary distributions, while the corporate trustee takes care of the investment strategy, tax filings and documentation.