Having a Reliable Trustee Is Vital
When you create a trust, you need to consider who will run the trust if you become unable to do so. A successor trustee is the party chosen to step in when the original trustee passes away, chooses to step down as trustee or loses the capacity to perform the required duties.
Managing a trust can be time-intensive. The person chosen may be required to wade through difficult situations while undertaking certain risks if the duties are not performed correctly.
These issues lead many people to consider hiring a professional to manage the trust. While the lawyer who created your estate plan may be able to serve as trustee, it’s important to secure an engagement letter specifically tied to that role. The letter should be distinct from the agreement tied to your estate planning.
When choosing a professional trustee, consider the following to make sure your choice is sound.
The Resources to Do the Job
When you’re looking for a professional, check to make sure they have the right tools to administer your trust correctly. Ask them questions concerning their ability in the following areas:
Accounting and Bookkeeping
Commingling the funds of a trust with personal funds, business funds or the funds of other trusts is a breach of fiduciary duty. Your successor trustee must be equipped to keep the trust funds separate from all other property.
In addition, a trustee is required to keep individual records about the funds of the trust, the principal, any income of the trust, what money is dispersed from the trust, receipts from expenditures, capital transactions, and other records.
Trustees must be able to produce these records to meet reporting requirements to beneficiaries. Beneficiaries of the trust income or principal have the right to detailed information about the content and activity of the trust.
This information is necessary to ensure that trustees don’t misuse the funds, either for personal gain, or to cover up the abuse tied to other clients’ funds.
Trust-Related Actions and Records
Tax preparation is an example of an activity that’s tied to the correct administration of a trust. Many trustees, including professional trustees, turn this duty over to a third party, but the trustee is still responsible for keeping the tax records.
Trustees must also keep a record of any correspondence connected with the trust, as well as paperwork supporting any discretionary distributions, including those to support any requested distributions.
Sufficient Staff
Professional trustees generally serve more than one client at a time. The more clients they oversee, the more trained staff they’ll need to stay on top of the work. Ask questions about the training and experience of the staff members who’ll be working on the trust, should the need arise.
Workload Management and Availability
When someone is stretched too thin, things get missed. Your professional trustee needs to have sufficient availability to complete all the tasks associated with proper management.
If a beneficiary asks a question or requests a meeting, will they receive a complete answer in a reasonable time frame? The terms of your trust may necessitate a greater level of availability than the professional in question can provide.
Distribution requests need to be carefully considered with an eye toward important elements such as the beneficiary’s health, educational opportunities, living circumstances, family situation, and more.
Requests may call for regular and sensitive communication. Will the potential trustee deal with your beneficiaries in a productive and caring manner, or will they have to badger the trustee to get answers?
Special Needs
The effort required to administer a trust can vary significantly depending on the nature of that trust. Special needs trusts and trusts designed to help a beneficiary battling substance abuse problems are two examples of trusts that may be more work-intensive.
Special needs trusts often require an understanding of government programs that can provide assistance. Mistakes can leave the beneficiary ineligible for benefits, causing the trust’s funds to drain more quickly.
In the case of addiction issues, trusts are generally designed to maximize the beneficiary’s recovery efforts. The trustee must understand the situation and tailor distribution decisions to the best interests of the beneficiary.
In both cases, a professional trustee who doesn’t focus sufficient time and attention on the situation could place the beneficiary in a difficult position.
A Plan for the Future
Under the right circumstances, a trust can outlast any of us. If your trust could last for a long time, you should consider how long a potential professional trustee will continue working.
If a candidate is on the brink of retirement or is considering a different career path, they might not be right for you. In any case, it’s a good idea to discuss the trustee’s plan of succession.
Just as you might have to pass the trust to this professional, they might have to pass it along someday. If the trustee has the authority to pick the next person to take the reins, it’s fair for you to ask who that will be or how that decision will be made.
One final note is that your choice of successor trustee should not come as a surprise to the person named. Your plan can name a successor trustee, but the person you name is not legally obligated to fulfill the role.
If the professional doesn’t have the time or energy to perform the required duties, they are likely to refuse the job. By notifying them in advance, you give them the chance to say no. That’ll give you time to make an alternative decision.
That’s a far better option than leaving your beneficiaries to settle the issue in a potentially contentious situation. Legal disputes can run up unnecessary costs and take significant time.
We Can Help You Make the Right Call Regarding a Successor Trustee
At the Law Office of Janet L. Brewer, we have extensive experience in estate planning issues, including the appointment of a trustee. We can help you make the right choice for your situation.
Call our Los Altos offices at 650-325-8276 or send us a message today to schedule a consultation.
