Colorado Probate Blog - Wade Ash Woods Hill & Farley, P.C.

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Selecting Your Trustee

Selecting your trustee is one of the most important decisions to make when creating a revocable trust. The trustee is a fiduciary with the legal obligation to carry out the directions set forth in the trust agreement. The responsibilities and duties include collection and management of assets, preparing tax returns and distributing the income and principal of the trust as the document sets forth.

The initial trustee of a trust typically is the grantor of the trust. Many married couples choose to have the spouse as a co-trustee. The purposes of a revocable trust are to establish a vehicle to manage assets in the event of the grantor’s disability, to avoid the need to probate assets in the event of the death of grantor, and to distribute the assets to the intended beneficiaries.

Successor trustees are designated to carry out directions if the grantor becomes disabled or dies. Choosing the right successor trustee is crucial. Choices include family members, friends, professionals, bank trust departments or other corporate entities. The trust document can name either one or more trustees to act jointly. When the trust’s primary beneficiaries are minors, choosing a family member and a corporate co-trustee allows for professional money management coordinated with the attention of the family member.

The successor trustee takes over asset management and is responsible for making income and principal distributions as set forth in the trust document. Provisions commonly seen in trust documents allow the successor trustee to have broad powers over the trust property and decision-making authority over distributions for health care, maintenance, education and support of the grantor, grantor’s spouse, children and other beneficiaries.

A successor trustee should have the following qualities:

·Impeccable integrity and honesty;
·Investment experience including:

   ·ability to make investment decisions regarding the retention, sale or purchase of securities;
   ·management of closely held business interests held by the trust;
   ·ability to work with other advisors; and
   ·good judgment and discretion regarding conflicting interests.
   ·Understanding of tax laws; and
   ·Probability of outliving grantor since duties can last for many years

Selecting a close family member as successor trustee does not guarantee successful trust administration if the person is not capable of managing the grantor’s finances or carrying out the grantor’s wishes. Even if capable, relatives may be too close to the family and all the family issues to be objective. The family member may bring knowledge of the family history and dynamics to the situation, but they also may bring biases, unsettled feuds and emotions.

Since the trustee’s duties require much effort and responsibility, they should be compensated for their time and responsibility, even if they are relatives.

Corporate trustees often are a better choice as successor trustee, particularly in situations with more complexity and significant assets. Corporate trustees may be bank trust departments, independent trust companies, financial advisors or some other objective entity. Corporate trustees generally have the skill, experience and professionalism to administer trusts and have the following additional benefits over family members or friends serving as trustee:

·Investment expertise;
·Continuity for the long term;
·Ability to make discretionary decisions according to the trust provisions without jeopardizing personal
 family relationships;
·Use of systems to process timely, accurate and compliant reporting of trust activity;
·Experience in trust administrative details such as bill paying, preparation of tax returns, budgeting,
 valuations, the discretionary process, and continuity throughout the term of the trust for the changing needs
 in the lives of the trust beneficiaries.

Some disadvantages of a corporate trustee include lack of responsiveness; lack of knowledge about the issues of beneficiaries, such as alcohol and gambling addictions; and lack of familiarity may cause legitimate needs to be ignored.

Fees of a corporate trustee may be a disadvantage in trusts of certain sizes. The additional cost can be worthwhile, however, since individual trustees may need to hire experts for services such as investment management and accounting and tax filings.

No matter who is chosen to act as trustee, the document creating the trust should clearly state your choice for the ultimate successor trustee. Failure to name an ultimate successor results in a court appointing your successor trustee.

If you have a revocable trust, selecting your trustee and successors should be done after careful consideration and discussions with your family and advisors. We suggest you review that decision on a regular basis and make changes when appropriate.

As a point of interest, Gary is a Past President of the Denver Trust Officers Association.

 

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