From healthcare proxies and advance directives to living trusts, estate planning is all about ensuring that your wishes are honored when you are no longer able to express them. To this end, appointing a trustee, and/or a successor trustee, is incredibly important, as this is the person who ensures that your directions are followed. If you die or become incapacitated, this trustee assumes responsibility for administering your trust, which may include everything from making distributions to paying bills and filing taxes. While a successor trustee may hire CPAs, advisors, attorneys, and other professionals to help, the responsibilities cannot be transferred, so it is important to be intentional about who you choose when you draft the estate plan and critical when you review it.
The Available Options for a Trustee, or Successor Trustee Appointment
Several different options should be considered as you think about the ideal successor trustee. In general, you may name a person or an organization to this position, as well as both. Individuals named as trustees, or successor trustees are usually family members or close friends, although not always. The important thing is that the person has a firm grasp on your situation and your desires for the future. However, this person also needs to have some project management skills and financial know-how, not to mention sufficient time for handling these responsibilities.
You may want to appoint a trust company, which is a professional organization that administers trusts. While such an organization would not know you intimately, the professionals who work there undergo credentialing to ensure they have the skills necessary to become effective administrators. Thus, they know the questions to ask to ensure they can fully represent you. Such organizations get paid for their time from the assets held in the trust. If you wish, you can name a person to help with making decisions and a trust company that can handle all the tasks involved with administration. This can save the person time while ensuring there is a personal touch.
The Practical Considerations in Making an Appointment
The first thing to consider before appointing a successor trustee is the complexity of assets held in your trust. If you have a number of investment portfolios, businesses, pieces of art, and/or real estate holdings, appointing a person may not make sense unless that individual has a lot of experience in multiple areas of finance. The successor trustee will need to inventory, value, and manage each of these assets, which can be a lot even for one expert. Most trust companies maintain relationships with a variety of experts in these different types of assets so they can manage them after your death. Even if you have a person in mind, appointing a professional trust organization may be necessary based on the complexity of the trust.
The other practical point to keep in mind is that no one can control the demands and changes that occur in life. Any single person will have obligations that could prevent them from putting the trust first, and this is impossible to predict. Individual trustees can become sick or have a family emergency. They can also face disability or death that can lead to gaps in administration. Thus, it’s important that there be someone else who can fill in and ensure that everything is moving as expected. From a practical standpoint, it often makes sense to have a trust company on board once the trust reaches a certain degree of complexity.
The Personal Side of Choosing the Ideal Successor Trustee
At the same time, you do not want to lose the personal connection you have to the trust and the best way to stay represented is through someone who knows you very well. Think about who you would trust to make decisions in your stead and who knows your personal values and goals. Once you have some people in mind, consider their track record with finance and business decisions, as well as their ability to make difficult decisions under pressure. Finally, does that person have the time available to commit to the administration of the trust? Few people will meet all of these requirements, which is not a problem. With the help of financial planners, accountants and money managers, as well of course as a third party trust organization, someone only needs to know you well enough to represent your wishes when it comes time to make a decision, and the rest falls on the advisors and trust company.
Often, family tensions can get in the way of naming a personal successor trustee, especially if multiple children are involved. Naming one can create an emotional response, and keeping in mind the interests of the whole family may become difficult for that person if they do not feel supported. The last thing you want to do in this situation is drive your family apart. In some circumstances, expensive litigation may result, especially if some people start questioning the administrative decisions made by the successor trustee. If you feel like this is a possibility that cannot be ruled out, having a truly objective successor like a trust company may be the best option.