Who Should Be In Charge?

An estate plan must be implemented on an ongoing basis.  This means that you must also choose the right trustee to put that language into effect.  Trustee selection is a critically important – sometimes the most important – part of the estate planning process.  There is no trust that is so well-written that it can ensure against trustee mismanagement.  What are the trustee responsibilities and what to consider when selecting a trustee who will best exercise those responsibilities?

Selecting a Trustee

Given the standard of care to which a trustee is held, and the sometime difficult decisions a trustee must make, choosing the right trustee is critical to your estate plan’s success.

One process you might follow to choose a trustee would be:

  1. Decide what kind of distribution provisions will be in the trust. Will they be fairly objective or more subjective, requiring greater discretion on the part of the trustee?
  2. Decide what kind of assets the trustee will be administering. Managing a portfolio of maketable securities requires a very different skill set from that needed to manage a controlling interest in a closely held business.

Individual Trustees vs. Corporate Trustees

The decision to appoint an individual or a corporate trustee and choosing the specific trustee require thoughtful analysis.  Individual trustee may be the better choice if a particularly close relationship with the beneficiary is needed or if the trust assets requires specialized knowledge, like a family business.

However, a trustee’s close relationship with a beneficiary can backfire: For example, it’s not always a good idea to name one sibling as the trustee for another sibling because complex emotional ties can get in the way of objective management decisions.  Individuals also might be the better choice if the trusts are of smaller value or shorter duration.

Corporate trustees often are the better choice when there isn’t a trusted individual available who can both manage trust assets effectively and make the hard decisions about when and when not to make distributions.  Corporate trustees also are good choices when choosing an individual would lead to adverse income, gift, or estate tax results.