Selecting Your Trustee

Simply explained, trusts are legal contracts between its grantor and the trustee governing how trust assets are invested and distributed.

You usually serve as both the grantor (creator) of the trust and as the trustee (director) of the trust. You are also the primary trust beneficiary for your lifetime, and you can amend the terms of the trust or revoke it in its entirety. If the trust is revoked, then those assets are returned to you.

For all intents and purposes, the trust is another method for you to own and hold your assets. The trust uses your social security number as its tax identification number. There are no separate tax returns for your trust during your lifetime.

The trustee of the trust is the person or entity charged with the responsibility of carrying out its terms. During your lifetime, and so long as you are acting as the trustee of the trust, its terms are simple — you get to do what you want with the trust assets. You can invest in anything you choose, and you can take monies and assets from your trust whenever you want in whatever quantities you desire.

At your death, your trust contains your direction for who inherits your assets and how they inherit those assets.

More than perhaps any other decision you will make, who you name to serve as your trustee in the event of your disability and your passing affects the success or failure of your estate plan.

Disability Trustee

When considering successor trustee choices, a client’s mind will often fixate on the choice for the trustee who will administer the estate upon her death. However, more important to her should be the choice over who will serve as her trustee in the event of her disability.

Who makes the investment decisions or otherwise interacts with her financial advisor if she is stricken with dementia or Alzheimer’s disease? Who decides what monies to spend on medical or nursing home care, or to distribute trust assets for the benefit of her spouse or other dependents?

These are weighty decisions, and can have a real economic effect when you are most vulnerable. We’ll review your choices and what steps to take to arrive at your decisions in the following chapters.

Naming a loved one to take care of your legal, tax and financial affairs in the event of your incapacity often places a significant burden on your loved one’s shoulders. It’s natural to name someone you trust. What can you do within your trust to make your successor trustee’s life any easier? These are questions we will explore further.

Administrative Trustee

Following your death, your successor trustee will interact with your attorney, accountant, financial advisor and other professionals to administer your trust estate and distribute the assets in accordance with its terms. The trustee may decide which assets to sell and convert to cash to pay for taxes and expenses of your administration, and how best to preserve the estate for the beneficiaries during the administrative process.

The trustee named who will manage the administrative phase of your trust will have many important and weighty decisions to make, even in the best of scenarios. We’ll review these issues together to clarify and explain how your trust may best address your particular circumstances.

Testamentary Trustee

Some trusts don’t distribute the assets outright to the trust beneficiaries following the grantor’s death. Instead, the trusts continue on as testamentary (after death) trusts for the benefit of the beneficiaries. It is common for these testamentary trusts to divide into separate shares, and a different trustee may govern each share.

Should you name one child to serve as trustee for a troubled child’s share? How do you best protect the inheritance you plan to leave your loved ones? What about protecting the inheritance from creditors, predators and divorcing spouses? Could those situations mandate an independent trustee to shield the inheritance from a divorce court, bankruptcy judge or similar problem? What about taxes?

Who you name to serve as trustee for each stage of your trust will shape the success or failure of your estate plan. Too often these issues are not addressed in the client/attorney estate planning conference. Within these pages we’ll explore together the pitfalls and opportunities that exist when making some of the most important decisions when planning your estate.