Living Trusts are designed to create a smooth and practically instant transition of control from one trustee to the next. When we talk about creating your living trust, one of the first questions is: who should be your successor trustee? In other words, who should be in charge of the trust in the event that you are incapacitated or have died?
Picking a Successor Trustee
For most families, the answer is relatively simple, they select one of their children, or another trusted family member. When is that not the best choice?
When You Want to Increase the Level of Asset Protection
Depending on the structure of your trust, having an independent trustee can increase the level of asset protection your beneficiaries may enjoy. In simple terms, because the trustee is not the beneficiary it is much harder for a court to order the beneficiary to access the trust funds on behalf of a creditor.
The successor trustee has many responsibilities – they will need to file all the appropriate tax returns, pay any estate taxes due, and most importantly – distribute the estate’s assets. Because the successor trustee is legally responsible for all of these items, family members may not want to assume that liability.
Some family members shouldn’t be entrusted with funds. Some family members are at odds with each other, and picking either side would simply lead to additional conflict. Some family members may simply feel inadequate, overwhelmed, or to grief-stricken to tackle all that needs to be done.
An alternative to naming an independent trustee as the sole trustee is to name the independent trustee as a co-trustee with a trusted family member. Often this arrangement gives you the best of both worlds – the experience and expertise of a professional fiduciary or independent trust company along with a family member who is familiar with the individual beneficiaries and their personalities and needs.
Bringing in a third party can add additional expense to the handling of your affairs, but in certain situations it can add protection and peace of mind. Image courtesy of Stuart Miles at FreeDigitalPhotos.net