I always call a trust a legal bucket because it holds property just like a bucket holds property. If you spend all the time to create a trust and you do not fill it with your property it may not be affected by the terms of your trust document. I also call the trust a bucket so that people understand their relationship with the property that they transfer into a trust. A “trustee” is the boss of the trust. Most clients create a “revocable” or “living” trust. This kind of trust is good for most of my clients because it can later be amended when life situations or the law changes. In these cases, the client is typically the first trustee of the trust. This means they are the boss. They are the ones holding the bucket and controlling the property inside the trust.
What happens when the original client can no longer take control of the bucket and the property within the bucket either due to incapacity or death? This is when a Successor Trustee steps in. A successor trustee is the person that you might select to take care of your finances if you cannot do it yourself.
With a few limitations, you can pick whomever you want to fill the role of Successor Trustee.
Limitations on your freedom to chooseFirst, let’s go over the people who cannot serve as Successor Trustee. A beneficiary of a special needs trust cannot serve as their own trustee. This can result in the trust disqualifying for the special needs status which protects the beneficiary’s government assistance.
Another person that cannot typically serve as the Successor Trustee is the attorney creating the trust. There are some practitioners who think it is okay for the trust drafter to serve as trustee, but there are definite conflicts of interest involved when the creator of the trust also serves in a position of power. It is our practice not to serve as trustee.
Another person that cannot typically serve as the Successor Trustee may be your financial advisor. Here, again, there are many potential and possibly real conflicts of interest. For one, the financial advisor has a vested interest in your trust continuing to invest with the financial advisor. It may, however, be more beneficial for the beneficiary to receive some of the funds from the trust to finance a new business or education.
These competing interests work at odds and may result in the financial advisor/ trustee to make the wrong choice for a beneficiary.
Benefits of Appointing a Family Member as Trustee
One benefit in appointing a family member as trustee is that they are more likely to get notification of your passing more quickly and are then often able to start to work on controlling and gathering your assets sooner. Also, the family member may be more familiar with what you own and what you owe and be able to pick up the job with less initial difficulty.
Downsides of Appointing a Family Member as Trustee
Lack of experience is probably the biggest downside of appointing a family member as trustee of your estate. There are legal documents that typically need filed even in the best laid estate plans. It may be difficult for a family member who has never navigated these kinds of processes to do the right thing at the right time.
Benefits of a Corporate Trustee
A corporate trustee, on the other hand, may have years even decades of experience in corralling an estate and may be adept at navigating the legal process that follows an incapacity or a death. They may also be financial professionals. Many corporate trustees are legal or financial professionals such as former estate planning attorneys and certified public accountants. They typically will have a well-honed process for finding out what the loved one’s properties are and what they owe as well.
It is a very personal decision whom you will choose to be the successor trustee of your trust and is not one to take lightly. If you would prefer a family member serve as trustee, there are legal and financial professionals who can help them execute their role well. If you are confused about who you should appoint as the Trustee of your plan, please give us a call at (951)304-3431.