When establishing an irrevocable trust, trustees are often chosen by the persons creating the trust without careful consideration of the qualifications a good trustee should have. When establishing a trust, you may choose virtually anyone to be your trustee, even yourself. However, some choices are better than others and thought should be given to who can, who should, and who should not serve as trustee.
An irrevocable trust is usually established while the grantor is living to save estate taxes (by removing assets from the grantor’s estate) and/or for asset protection or Medicaid (MassHealth in Massachusetts) planning.
While a grantor may technically be allowed to serve as the trustee of an irrevocable trust he creates, this can cause some problems. For example, if the grantor has any discretion with trust asset distributions, it could lead to inclusion of the trust assets in his estate for tax, Medicaid and other purposes, which could frustrate the trust’s objectives.
Often the grantor will choose his spouse, sibling, child, or friend to serve as trustee. Any of these may be an acceptable choice from a legal perspective, but may be a poor choice for other reasons. For example, certain trustee nominations could exacerbate family disputes or rivalries and non-financially savvy relations may not be up to the responsibilities.
Personal Considerations for Selecting a Trustee
Here are some of the characteristics that the you should consider in choosing an individual trustee:
Judgment: You are choosing a trustee to make decisions on your behalf.. Does your nominee share your values, virtues, spending habits and faith? If the trustee candidate does not have accounting or investment experience, would they have the judgment to admit this and engage an appropriate qualified professional?
Availability/Location: Does this trustee candidate have the time required to be a trustee? Will he be available when needed or will work and/or family demands leave too little time for trust responsibilities?
Longevity: How long will the trustee be needed and how old is the potential trustee? Many grantors are most comfortable with friends who share their values and have gained wisdom from life experiences, but someone near the grantor’s age may not live long enough to fulfill the job.
Impartiality: The trustee must be capable of being impartial among the beneficiaries. This is especially difficult to do if the trustee is one of several beneficiaries. If you feel a conflict is likely to occur between your beneficiaries, a corporate trustee may be a good option because they can be impartial.
Interpersonal Skills: A good trustee will need to be able to work calmly and well with all involved. If the person you are nominating is easily intimidated or particularly overbearing, this can cause strained relations between the beneficiaries of your trust.
Attention to Detail: Trustees undertake serious duties and are held accountable for their actions as fiduciaries. A well organized trustee who can maintain good records is less likely to get into trouble should their authority be challenged.
Investment Experience: A trustee doesn’t need to have investment experience, but it can certainly be helpful. If they do not, they should be willing and able to engage professional counsel to help them manage the trust’s investments.
Fees: Often, family members and friends serving as trustees will not charge a fee for their services out of a sense of family duty or respect for the grantor. But trustees should be paid for their efforts and should keep close track of time and expenses so that a reasonable fee can be substantiated.
The Trustee’s Duties and Responsibilities
- administer the trust
- be loyal
- be impartial
- be prudent
- control and protect trust property
- collect trust property
- inform and report to beneficiaries
- diversify investments
- keep records and no commingling
- enforce and defend claims
Choosing the right trustee is just as important as having a well-drafted trust. Discussing your potential choices with an estate planning attorney can provide greater security to your estate plan and ensure that your trust will function as you intended it to. Call the Heritage Law Center for a free consultation on trust options and asset protection strategies for you and your family.