One of the biggest decisions you will make when creating your Living Trust is choosing who will be your Trustee. The Trustee is the administrator of your Trust assets. The Trustee will collect and manage your assets, pay your debts, and distribute your assets to your beneficiaries after you pass away. The Trustee should be someone you can count on, someone reliable, and someone who can manage money and property. Some Trustees abuse their power to the detriment of the beneficiaries or breach their fiduciary duty to the Trust. This is why it is important to select a Trustee you can depend on.
Many people create a Living Trust without giving their choice of a Trustee the important consideration it deserves. This may be due to the limited choices some people have in selecting a Trustee. Typically, the selection is made among family members, with adult children being the first choice. However, it can lead to a great deal of tension, anxiety, and conflict among family members and maybe lead to lawsuits. Friends, colleagues, or other professionals may also be a good choice, but it is important to consider several factors before making your selection.
The following are a factors you should consider:
A Competent Trustee. You need a Trustee who is competent and can handle the job. Being a Trustee requires a lot of work. It comes with many responsibilities and obligations imposed by the California Probate Code and the Trust itself. If a Trustee fails to properly carry out their duties, he or she may be personally liable for any damages caused the beneficiaries.
The Trustee should be someone who can (1) manage financial assets, (2) follow the directions in the Trust and the California Probate Code, (3) manage the personalities of the beneficiaries, and (4) work closely with professionals, like attorneys and accountants. While you may still want one of your children to be your Trustee, that person may not be the best choice if they do not meet these requirements.
An Independent Trustee. There are choices for Trustee outside of your family, including Corporate Trustees and private Professional Fiduciaries.
Corporate Trustees are financial institutions who act as a Trustee after you pass away. Some Corporate Trustees require the Trust to have minimum assets before they will agree to act. The benefit of a Corporate Trustee is that they are in the business of managing Trusts and have knowledge and experience. They also have a team of professionals to oversee the administration of your trust. The downside is they tend to be an expensive option—charging up to 2% of the value of your assets on an annual basis. This can cost your estate tens of thousands of dollars.
Private Professional Fiduciaries are individuals who make their living acting as Trustees. In California, private Professional Fiduciaries must be licensed. Since they are in the business, they are good at managing trust assets, and they tend to charge less than Corporate Trustees. And a good private Professional Fiduciary can manage both the trust assets and the relationships of the beneficiaries.
A Well-Informed Trustee. Whoever you choose as Trustee, don’t forget to find out if that Trustee is well-informed about handling Trust administration. You should always talk to the person you have named as your Trustee to make sure they want to be your Trustee, and if so, if they understand their duties in managing the Trust.
The choice of Trustee is yours to make, so make sure you take the time to consider your options and the qualifications of the person you are considering.
I am estate planning attorney Eric A. Rudolph with The Law Offices of Eric A. Rudolph, P.C. We specialize in preparing and updating Living Trusts and the Administration of Living Trusts. Please call us at (760) 673-7600 or e-mail us at admin@rudolphlegal.com for more information.