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Trustee

5 Mistakes Made by Successor Trustees (and How To Prevent Them)

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When establishing a trust, you need to give serious thought to choosing your successor trustee—the person who will administer your trust once you’re no longer able to do so. This individual ideally should be:

  • Someone you trust implicitly.
  • Someone who is organized, responsible and meticulous.
  • Someone who can remain steadfast to your wishes in the face of family disagreements and other disputes regarding the trust.

That said, even the most capable, well-intentioned successor trustees can make mistakes when managing affairs. Here are five surprisingly common mistakes along with steps to take to prevent them from happening.

1. Faulty Record-keeping

To ensure that a trust fulfills its purpose without being contested, the trustee must keep accurate, detailed records of income and distributions. Your trustee must also be prepared to report these figures regularly to the beneficiaries and heirs. If these records are incomplete or inaccurate, the door is opened for someone to challenge the trust, potentially leading to lengthy and costly court battles.

To prevent this mistake: Hire an accountant to assist the successor trustee in record-keeping, and make sure the trustee and the accountant make a connection before the trustee takes over.

2. Misunderstanding the Fiduciary Role

Mistakes Trustee Successors

Many trustees mistakenly assume their job involves acting in the best interests of the person setting up the trust. In reality, their job is to act in the interests of the beneficiaries of the trust. Furthermore, the trustee may be legally liable for any failure to protect the beneficiaries against bad investment advice concerning the trust.

To prevent this mistake: Detail the fiduciary role of the successor trustee in the trust documentation itself, and be certain that the trustee understands his/her role.

3. Not Collaborating Effectively with Your Established Financial Team

The successor trustee’s failure to communicate with key members of your team while administering your trust can lead to inaccuracies, misunderstandings and significant, preventable financial losses.

To prevent this mistake: Make sure your trustee is properly introduced to, and connected with, your attorney, CPA, financial planner, and anyone else involved with your estate planning.

4. Failing to Discuss Compensation

If your appointed trustee is a close friend or family member, the topic of compensating the trustee may be glossed over or forgotten. This oversight can result in a lack of morale or even resentment if managing the trust becomes difficult or time consuming.

To prevent this mistake: Bring up the topic of compensation yourself when you establish the arrangement; be as generous as you deem necessary; and put the compensation terms in writing.

5. Failing to Remain Objective

Many people choose a close family member as a trustee. This strategy can be appropriate, especially when privacy matters. However, disputes about money can happen even in the tightest-knit families, and it can be difficult to near-impossible for a relative to remain neutral when resolving those fights. The end result could be decisions that family members perceive to be unfair or that wind up being inconsistent with your intentions.

To prevent this mistake: Make certain the person you choose can remain neutral and faithful to the terms of the trust, even under duress. If there is any doubt, consider hiring a corporate trustee with no emotional connection to the family or estate.

Selecting a successor trustee is one of the most important decisions you will make during your estate planning process. For insightful counsel on this issue, contact us today to schedule a private appointment.

3 Powers to Consider Giving to a Trust Protector

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Today many estate plans contain irrevocable trusts that will continue for the benefit of a spouse’s lifetime and then for the benefit of several generations.  Since these trusts are designed to span multiple decades, they must include a trust protector who will have the ability to adjust the trust provisions as circumstances, beneficiaries, and governing laws change.

What is a Trust Protector?

Trust Protector

A trust protector is an individual or group of individuals who are given the power to ensure that the purposes and goals of the creator of an irrevocable trust are ultimately fulfilled.  Generally, the trust protector may be a family member or friend (typically someone who is not a beneficiary or trustee of the trust), an unrelated trusted advisor, or a group of these individuals acting by majority or unanimous agreement.  The choice of who to name as the trust protector will depend on the trust creator’s wishes and the intended duration of the trust.

What Powers Should a Trust Protector Hold?

A trust protector can be given as few or as many powers as the trust creator desires.  While it may be tempting to give a trust protector a wide array of powers to deal with every possible future circumstance, the trust creator should carefully consider the specific purposes and goals for their trust and only give the trust protector powers that will further those purposes and goals.  

Regardless of a trust creator’s intent, below are three powers that all trust creators should consider giving their trust protectors:

  1. Power to Amend Trust Provisions.  Some irrevocable trusts that are intended to continue for multiple generations begin as revocable trusts that only become irrevocable after the trust creator dies or at some other time in the future.  If the trust creator fails to update the trust due to changes in circumstances, beneficiaries, or governing laws while the trust is still revocable, a trust protector can fix these issues after the trust becomes irrevocable.
  2. Power to Add, Remove and Replace Trustees.  Giving this power to the trust beneficiaries may defeat the trust creator’s intent since the beneficiaries may be inclined to hastily remove a trustee who does not give in to their every request. Instead, a trust protector can take an objective look at the trustee’s actions or inactions and determine if the trust creator’s intent is being fulfilled or derailed.  
  3. Power to Change Trust Situs and Governing Law.  Since it is impossible to predict where the beneficiaries and trustees of an irrevocable trust will live in the future, this power is critical to ensure that the trust will continue for as long as the trust creator intended and with minimum tax consequences.  Giving this power to the trust protector will allow an objective party to determine if the change will be beneficial or is necessary.

Final Thoughts on Trust Protectors

Including a trust protector in an irrevocable trust agreement or a revocable trust agreement that will become irrevocable at some time in the future is critical to the success and longevity of the trust.  Nonetheless, the trust protector should only be given powers that will ensure the purposes and goals of the trust creator are ultimately fulfilled.

If you are interested in adding a trust protector to your trust or would like to have the trust protector provisions of your trust reviewed, please contact us today! Call our office at 832.408.0505 or schedule your appointment right now.

How Is a Corporate Trustee Different? 

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In its simplest terms, a trust is a legal arrangement in which a trustee holds and manages assets for the benefit of one or more beneficiaries. The trustee owns the assets, enters into contracts on behalf of the trust, manages the trust’s investments as its trustee, and follows the trust’s instructions on making distributions. A trustee can be one-person, multiple people, or a company. 

Duties of a Trustee

The duties of a trustee are many, as a trustee owes a fiduciary duty to the beneficiaries of the trust. Some of these duties include acting in good faith, exercising reasonable care in the administration of the trust funds, keeping proper books and records for the trust, carrying out the trust terms as laid out in the trust document, avoiding any conflicts of interest, and not personally benefiting from his or her position as a trustee – except as where provided by the trust document or under applicable law.

Benefits of Corporate Trustees

Corporate Trustee

When you have a corporate trustee, as opposed to an individual trustee, the company is a trustee.  The benefits of a corporate trustee include impartiality and professional judgment – unlike individual trustees who may be subject to family politics or favoritism.  Moreover, managing trusts is the corporate trustee’s primary duty – as opposed to an individual trustee who can often have other personal, family, and career responsibilities that will serve as a constant distraction.  Corporate trustees will likely have better recordkeeping habits which can be helpful in the case of audits from the IRS or state tax agency.  Finally, a corporate trustee, because it is a company, lives forever and cannot become incapacitated like a person.  As a result, the succession of trustee authority is typically more predictable and smoother.

Bottom Line

When you decide to set up a trust as part of your estate plan, know that you can do so as an individual or a corporate trustee. Each has its own advantages. If you need assistance in understanding this process and choosing the right type of trustee for your particular situation, contact us today! Call our office at 832.408.0505 or schedule your appointment right now.

Who Should be Your Successor Trustee?

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If you have a revocable living trust, you probably named yourself as trustee so you can continue to manage your own financial affairs, but eventually, someone will need to step in for you when you are no longer able to act due to incapacity or after your death.  Your successor trustee plays an important role in the effective execution of your estate plan.

The Key Takeaways:

Trusts wordcloud

  • Because successor trustees have a lot of responsibility, they should be chosen carefully.
  • Successor trustees can be your adult children, other relatives, a trusted friend, or a corporate or professional trustee.

Responsibilities of A Successor Trustee

At Incapacity: If you become incapacitated, your successor will step in and take full control of your trust for you – making financial decisions involving trust assets, even selling or refinancing assets, and other tasks related to your trust’s assets.  Since your trustee can only manage assets that the trust owns, it’s vitally important that you fully fund your trust.  Your successor may also be involved in paying bills and helping to ensure you get the care you need.

After Death: After you die, your successor acts similar to an executor of an estate.  The successor takes an inventory of your assets, pays your final bills, sells assets if necessary, has your final tax returns prepared, and distributes your assets according to the instructions in your trust.  Like incapacity, the successor trustee is limited to managing assets that are owned by the trust, so fully funding your trust is vitally important.

Your successor trustee typically acts without court supervision, which is why your affairs can be handled privately and efficiently – and probably one of the reasons you have a living trust in the first place.  But this also means it will be up to your successor to get things started and keep them moving along.

An Important Consideration

Your successor will be able to do anything you could with your trust assets, as long as it does not conflict with the instructions in your trust document and does not breach fiduciary duty.

It isn’t necessary for the successor trustee to know exactly what to do and when, because your attorney, CPA, and other advisors can help guide him or her, but it is important that you name someone who is responsible and conscientious.

Who Can Be Successor Trustees

Successor trustees can be your adult children, other relatives, a trusted friend or a professional or corporate trustee (bank trust department or trust company).  If you choose an individual, you should name more than one in case your first choice is unable or unwilling to act.

What You Need to Know:

Your successor trustee should be someone you know and trust, someone whose judgment you respect and who will also respect your wishes.

When choosing a successor, keep in mind the type and amount of assets in your trust and the complexity of the provisions in your trust document.  For example, if you plan to keep assets in your trust after you die for your beneficiaries, your successor would have more responsibilities for a longer period of time than if your assets will be distributed all at once.

  • Consider the qualifications of your candidates, including personalities, financial or business experience, and time available due to their own family or career demands.  Taking over as trustee for someone can take a substantial amount of time and requires a certain amount of business sense.
  • Be sure to ask the people you are considering if they would want this responsibility.  Don’t put them on the spot and just assume they want to do this.
  • Trustees should be paid for their work; your trust document should provide for fair and reasonable compensation.

Rest assured, we can help you select, educate, and advise your successor trustees.  You are not alone.  If you have any questions or concerns, please feel free to call or schedule an appointment with us.

How to Choose a Trustee

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When you establish a trust, you name someone to be the trustee.  A trustee does what you do right now with your financial affairs – collect income, pay bills and taxes, save and invest for the future, buy and sell assets, provide for your loved ones, keep accurate records, and generally keep things organized and in good order.

The Key Takeaways

key takeaways

You can be a trustee of your revocable living trust.  If you are married, your spouse can be co-trustee.

  • Most irrevocable trusts do not allow you to be a trustee.
  • Even though you may be allowed to be your own trustee, you may not be the best choice.
  • You can also choose an adult child, a trusted friend or a professional or corporate trustee.
  • Naming someone else to be co-trustee with you helps them become familiar with your trust, allows them to learn firsthand how you want the trust to operate, and lets you evaluate the co-trustees’ abilities.

Who Can Be Your Trustee

If you have a revocable living trust, you can be your own trustee.  If you are married, your spouse can be a trustee with you.  This way, if either of you become incapacitated or die, the other can continue to handle your financial affairs without interruption.  Most married couples who own assets together, especially those who have been married for some time, are usually co-trustees.

You don’t have to be your own trustee.  Some people choose an adult son or daughter, a trusted friend or another relative.  Some like having the experience and investment skills of a professional or corporate trustee (e.g., a bank trust department or trust company).  Naming someone else as trustee or co-trustee with you does not mean you lose control.  The trustee you name must follow the instructions in your trust and report to you.  You can even replace your trustee should you change your mind.

When to Consider a Professional or Corporate Trustee

You may be elderly, widowed, or in declining health and have no children or other trusted relatives living nearby.  Or your candidates may not have the time or ability to manage your trust.  You may simply not have the time, desire or experience to manage your investments by yourself.  Also, certain irrevocable trusts will not allow you to be trustee due to restrictions in the tax laws.  In these situations, a professional or corporate trustee may be exactly what you need: they have the experience, time and resources to manage your trust and help you meet your investment goals.

What You Need to Know

Professional or corporate trustees will charge a fee to manage your trust, but generally, the fee is quite reasonable, especially when you consider their experience, the services provided, and the investment returns that a professional trustee can deliver.

Actions to Consider

  • Honestly evaluate if you are the best choice to be your own trustee.  Someone else may truly do a better job than you, especially in investing your assets.
  • Name someone to be co-trustee with you now.  This would eliminate the time a successor would need to become knowledgeable about your trust, your assets, and the needs and personalities of your beneficiaries.  It would also let you evaluate if the co-trustee is the right choice to manage the trust in your absence.
  • Evaluate your trustee candidates carefully and realistically.
  • If you are considering a professional or corporate trustee, talk to several.  Compare their services, investment returns, and fees.

We can help you select, educate, and advise your successor trustees so they will have support and know what to do next to carry out your wishes.  Contact us or give us a call today.

Should Your Child’s Guardian and Trustee be the Same Person?

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If you have overheard any discussion about estate planning, you have likely heard the words “guardian” or “trustee” tossed around in the conversation.  When it comes to estate planning, who will be ultimately in charge of your minor child is an important decision that requires consideration of many factors.  Although there is no substitute for you as a parent, a guardian is essentially someone who steps in as a parent, assuming the parental role and raising the child through adulthood.  A trustee, on the other hand, is in charge of managing the financial legacy that has been left behind for the minor.  As a parent, you need to take into account the characteristics needed for each role.

mother and child

Who Makes a Good Guardian?

When choosing a guardian, the top factor to consider is who is the best person that will love and raise your child in a manner that you would.  This would include religious beliefs, parenting style, interest in extracurricular activities, energy level, and whether or not he or she has children already.  Keep in mind that a guardian will provide day-to-day love, care, and support for your child.  While the guardian you choose may be great with your children, he or she may not be great with money.  For this reason, it may make sense to place the financial management of your minor child’s funds in the hands of someone else.

Who Makes a Good Trustee?

Not surprisingly, when choosing a trustee the most important characteristic is that he or she is great with finances.  Specifically, the trustee must be able to manage the funds in accordance with your intent and instructions that are left in your trust.  Consider whether he or she will honor your wishes.  Likewise, should you choose to grant your successor trustee discretion in making financial decisions regarding the management of funds left behind you should ensure the individual’s decisions will be aligned with your intent.  In short, you want to choose a successor trustee who will act in your minor child’s best interest within the limits you have set forth in your estate plan documents.  If you choose two different people for the role of guardian and trustee, make sure to consider how the two get along as they will likely have to work together throughout your minor’s childhood and possibly into adulthood.

Seek Help to Make Your Decision

While estate planning can be daunting, it does not have to be.  Contact a knowledgeable estate planning attorney to help guide you through this process.  We can explain your options and advise you on the best plan that will follow your wishes while at the same time meeting your family’s needs.