Selecting the right trustee of your revocable living trust is perhaps as important as completing your estate plan itself. For some families the choice seems obvious, but for others the choice can be difficult. Here are five key skills to look for in making this vital decision.
The trustee needs to be able to handle money and understand simple accounting principles like recording what money comes in, and what money goes out while they’re in charge. If they can balance a checkbook and work with a budget, they’ll do fine.
Decision Making Ability
I like to tease my family that when life presents you with a difficult choice, you should choose both. This applies especially to the desert menu. Beyond choosing between ice cream or pie, your trustee should be able to review a situation and make an informed decision, and carry through with it.
A key skill for any trustee is the ability to arbitrate potential family disputes, and resolve them in a way that everyone can live with. Not everyone can make tough decisions and keep everyone on board. Who is the person in your family who gets along the best with everyone else? Just be careful, sometimes the person who gets along with everyone is the person who has a tough time making decisions.
When you select a successor trustee, you want to be able to trust that they will carry out your wishes faithfully. That persons character will matter more than any of the technical skills combined.
Being a successor trustee is a time commitment. There are personal assets to deal with, decisions regarding valuing and possibly selling real property. All of these things will take time, and in some cases, a lot of time. Your first choice may be the successful businessman, but if he is working 80 hour weeks, and can’t take time off, you may be asking too much. What about who is the oldest or who lives the closest? After you’ve evaluated your options for the skills discussed above, the choice can come down to your personal preference.
Whom to Choose
Beyond choosing family members – your children or close relatives – what other options do you have in choosing a trustee? Outside your family or trusted friends, you have three options for trustees: a trusted professional advisor like your CPA, financial institutions, and private trustees.
Professional advisors, like your accountant or CPA may occasionally agree to act as a trustee. Typically, they do not handle such matters on a regular basis, although their relationship and training gives them an advantage over some. You’ll need to be clear in discussing this options with your advisor whether they’re taking this position in their professional capacity, or as a personal friend.
Financial institutions, like banks, often have trustee services available. Usually those services are limited to managing the money, and most require a sizeable amount before they will agree to manage it. Sometimes they require a co-trustee who will be the person in charge of making distributions. Their fees are usually based on a percentage of the money managed.
Private trustees offer a broader array of services, including potentially the ability to be named as an agent for a Health Care Directive or Power of Attorney. Private trustee fees vary, but are usually based on time spent, rather than a fixed percentage of the assets. The best resource to find a private trustee in California is the Professional Fiduciary Association. In some situations, using a combination of professional trustee and family member(s) can offer added asset protection and provide a balance between knowledge of the family situation, and financial expertise.
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Originally published August 14, 2014. Updated Feb 4, 2016.