When a trust is established, a person is nominated to be the trustee. If your client is creating a revocable living trust, they will likely be the initial trustee. They will also want to name successors or backup trustees to step in and manage the trust’s affairs if they can no longer manage the trust themselves. The trustee is in charge of managing the trust’s accounts and property. Specific duties can include collecting income, paying bills and taxes, making investment decisions, buying and selling property, providing money for your client (during their lifetime) and their loved ones according to the trust’s instructions, keeping accurate records, and generally keeping things organized and in good order.
Key Takeaways
- Your client can be the trustee of their revocable living trust. If they are married, their spouse can be the co-trustee.
- Most irrevocable trusts do not allow the owner to be a trustee.
- Even though your client can be the trustee of their own trust, they may not always be the best choice.
- Your client can choose an adult child, a trusted friend, or a professional or corporate trustee to act as trustee.
- As a trustee, they can hire certain individuals or professionals to assist them or any successor trustee in managing the trust.
- Naming someone else to be a co-trustee with them helps the co-trustee become familiar with their trust, allows the co-trustee to learn firsthand how they want the trust to operate, and lets them evaluate the co-trustee’s abilities. As a practical tip, if they decide to add a co-trustee, your client may want to talk to their banks and other financial institutions to learn and understand the various co-trustee policies. Some do not like to work with co-trustees in general, while others require that the terms of the trust state that each co-trustee can act independently of each other (rather than requiring both co-trustee’s signatures or authorization for all acts on behalf of the trust).
Who Can Be Your Client’s Initial Trustee
As previously mentioned, your client can be their own trustee if they have a revocable living trust. If they are married, their spouse can be a co-trustee. If either cannot manage their affairs or dies, the other can usually continue to handle the financial affairs without interruption. Most married couples who own accounts and property together, especially those who have been married for some time, usually elect to serve as co-trustees.
However, they do not have to be their own trustee. Some people choose an adult child, trusted friend, or relative to serve in this capacity. Some individuals prefer a professional or corporate trustee (e.g., a bank trust department or trust company) due to their experience and investment skills. Nominating someone else to serve as trustee or co-trustee of one’s trust does not mean they lose control. The trustee your client nominates must follow the instructions within your client’s trust and may ultimately report to the trust owner. In many cases, they can even replace their selection of trustee if they change their mind or the arrangement is not working out as imagined.
When to Consider a Professional or Corporate Trustee
A professional or corporate trustee is valuable in several instances. Your client may feel as though they are not able to serve as trustee for a variety of reasons. If they are elderly, widowed, or in declining health with no children or other trusted relatives living nearby, and their other potential candidates lack the time or ability to manage their trust, a professional trustee can give your client peace of mind that their affairs are being handled appropriately. Or, they may simply not have the time, desire, or experience to manage investments by themselves at any age or health status. Also, certain irrevocable trusts may not allow your client to act as a trustee due to tax law restrictions. In these situations, a professional or corporate trustee may be exactly what is needed: they have the experience, time, and resources to manage the trust properly and help your client meet their investment goals.
What Your Client Needs to Know
Professional or corporate trustees (as you know) will charge a fee to manage their trust. Usually, the fee will be based on the value of the trust’s accounts and property they will manage. Although these fees can be high, they may consider them worthwhile, especially considering the experience they bring, the quality of the services provided, and the investment returns a professional trustee can deliver.
Actions for Your Client to Consider
- Honestly evaluate whether they are the best choice to be their own trustee. Someone else may do a better job than they can, especially with regard to investing their money. However, if they choose to be the trustee of their own trust, they can still hire financial advisors to assist them in making the right investment choices. They do not have to do everything themselves and if your role is one of an investment provider, you may wish to discuss how your firm approaches the Trustee role. Explaining how you would be an unbiased and knowledgeable option may be a good idea.
- Depending on the situation, it may be a good idea for your client to nominate someone to serve as co-trustee with them now. This eliminates the time a successor would need to become knowledgeable about the trust, their accounts and property, and their beneficiaries’ needs and personalities. It would also allow them to evaluate whether the co-trustee is the right choice to manage the trust in their absence.
- Your client should evaluate their trustee candidates carefully and realistically. Some may assume that their oldest adult child would make a good trustee. Unfortunately, birth order may not accurately indicate financial management skills.
Once you have discussed this with your client and have provided unbiased information to help guide their decision, we encourage you to recommend that they consult a professional estate planning attorney, such as Kerlin Walsh Law. We can help with selecting, educating, and advising their successor trustees so they will have the support needed to properly fulfill their wishes when the time comes. We welcome your referral. Should you or your client wish to discuss the options and how to proceed, simply call our office at 708.448.5169.
