When establishing a trust, many decisions have to be made such as: At what ages will distributions be made? Who the beneficiaries will be? Who will be contingent beneficiaries in the event that the first named beneficiary is deceased? However, one of the most important decisions is the selection of a trustee. This is the person or entity who will be in charge of administering the funds in the trust if the grantor becomes incapacitated or dies.
The responsibility of the trustee is that of a fiduciary, which means that they have a high decree of responsibility to administer the funds, even a greater responsibility then they would have had to manage their own funds. In addition to the management of the trust, administration involves the distribution of funds to or for the benefit of beneficiaries.
In the event that there is a broad standard provided to the trustee for the beneficiary’s comfort, maintenance, support, education, and enjoyment, the trustee must determine how much money should be distributed at certain times and what proper use of the funds was intended by the creator of the trust. This may involve such things as the payment of tuition to a college as well as the purchase of a vehicle. For example, the trustee will have to determine whether the student should have a new Chevrolet or a used Volvo.
The trustee will also be required to file income tax returns, as well as estimated taxes throughout the year and review the income, gains, losses, and deductible expenses for purposes of taxes. The trustee normally engages the services of an accountant who is well versed in trust taxes, but it is up to the fiduciary to make all of the appropriate decisions based on recommendations provided to the trustee.
There may also be difficult decisions that a trustee has to make such as whether funds should be distributed for the benefit of a beneficiary who might be getting married. Should a wedding gift be purchased from those funds for the benefit of the newlyweds? Is it appropriate for the trust to expend funds for a honeymoon, and if so, to what extent? Should the bride and groom travel first class on their honeymoon?
Often the grantor will name an individual person to serve as the trustee or perhaps two individuals to serve together. In the event that a person does not wish to have family members involved in the administration and investments of the trust, it may be preferable to select a corporate fiduciary, be it a bank, trust company, or investment firm to serve as the trustee. The trustee will then attend to the duties as well as be responsible for all investments.
In the event that an individual trustee is named, then that person may decide that they wish to delegate the investment responsibility to a corporate trustee, and this language should be included in the trust to allow the individual to engage the services of a professional advisor for financial decisions as well as professionals for taxes, legal issues, etc.
While there is no right or wrong decision as to the most appropriate person or entity to serve as the successor trustee, it is important to be sure that the correct decision is being made. Once the document is signed, if the grantor has second thoughts about the trustee, and as long as the trust is revocable, a relatively simple amendment may change the fiduciary to a different family member, friend, corporate entity, or a combination of the above. Unfortunately, in certain situations there is no family member who is trustworthy, responsible, and will devote the necessary time to the important task of being the trustee. In those situations, it is probably better to select someone outside the family.
It should also be mentioned this should be discussed with the attorney who is preparing the documents to help assure that the person is being selected for the correct reasons, not merely because they are related or wealthy.
Hyman G. Darling, Esq.