How to Choose a Trustee

Creating a trust as part of your estate plan is often a wise choice—if you understand how to choose a trustee. In addition to avoiding probate, a trust can provide a host of other benefits, such as increased flexibility and control. A trust can also provide protection for assets—including beneficiaries who may not have the wisdom or impulse control to responsibly manage an inheritance on their own.

Why Choosing a Trustee Matters

A living trust is one of the most popular options among various types of trusts. With a living trust, the person creating it (called the grantor, settlor, or trustmaker) also serves as the trustee (manager of the trust) and beneficiary (person who receives distributions from the trust). What this means if you create a trust is that during your lifetime, you can use, enjoy, and transfer trust assets just as if they were in your own name.

Should you become incapacitated, or upon your death, the successor trustee you have appointed in your trust document steps in to manage assets in the trust for the benefit of the beneficiary or beneficiaries: that’s you if you are still alive, and the people you have named as beneficiaries in the trust document if you are not. With a well-drafted trust and a suitable trustee, this process is often seamless.

When you are choosing a trustee, in other words, you are selecting someone to “step into your shoes” and manage the assets in your trust as responsibly as you would. It’s not merely an honorary position; it is a lot of work. An unprepared, unsuitable, or unethical trustee could jeopardize your financial security or that of your loved ones. So how do you choose a trustee?

Choosing a Trustee for a Trust: What to Look for

A trustee can be any adult, such as a family member, friend, attorney, or business associate. You can also choose a corporate trustee; banks, trust companies, and other financial institutions also offer trustee services.

Here are some of the primary considerations you should take into account when choosing a trustee:

Trustworthiness

When you choose a trustee, you are handing over “the keys to the kingdom,” so to speak: the assets you have worked all your life to accumulate and protect. Therefore, a primary consideration is choosing a person or entity that you can trust with your assets and your family’s future financial interests.

Choosing a trustee for a trust is a business decision. Your trustee is a fiduciary, someone obligated to act in the best interest of the trust beneficiaries—not their own interests. Select a trustee whose ethics you know are unimpeachable.

Ability

Your trustee doesn’t have to be a financial genius; they can hire financial advisors and other professionals to guide them in making decisions and transactions. However, they must have the ability to carry out their tasks as trustee, including paying bills, tracking expenses, and perhaps managing a business, real estate, or other investments. Doing these things well is a significant time commitment.

Financial responsibility is also a critical component of a trustee’s ability. If a potential trustee has a history of impulsive financial behavior, gambling, or falling for “get-rich-quick” schemes, or if they have run up a lot of debt, it’s reasonable to question whether they could handle your trust assets responsibly. There is also the possibility that a trustee with gambling or debt problems might be tempted to “borrow” from trust assets to avoid the consequences of their own poor financial choices.

Impartiality

When the grantor of a trust dies, there are often multiple “remainder beneficiaries” of the trust, often children and grandchildren of the grantor. That means there can be complicated family dynamics to navigate, especially when the trustee has been given discretion to make or withhold distributions from the trust.

A trustee must be able to act fairly and impartially without favoring certain beneficiaries over others. A good trustee will also have the diplomacy skills to navigate family relationships and sensitive financial issues.

Communication Skills

Being a trustee involves a lot of communicating: with financial professionals, attorneys, and of course, beneficiaries, who are entitled to periodic updates regarding the trust. When choosing a trustee for your trust, take their willingness and ability to communicate clearly into account.

Health and Longevity

Some trusts distribute all their assets to the remainder beneficiaries shortly after the death of the grantor. If that’s the case with the terms of your trust, it may not matter whether your successor trustee is around for years after your death.

But if you want the trust you have created to continue, the health and likely longevity of your chosen successor trustee matters. Let’s say you are creating a trust primarily for the benefit of your young grandchildren’s future health, education, maintenance, and support needs. The trust may need to continue for ten or fifteen years, or perhaps longer. Be sure to choose a trustee who is capable of responsibly managing the trust not only today, but who is also likely to be available well into the future.

Choosing a Trustee: Individual or Corporate?

There are pros and cons for both individual and corporate trustees. Individual trustees have the advantage of often having a personal relationship with the grantor and/or beneficiaries, which can foster trust. Individual trustee fees are also typically lower than those of a corporate trustee. However, corporate trustees offer valuable expertise and continuity. In addition, they are typically regulated by government authorities, which provides reassurance of additional oversight.

In the end, choosing a trustee for a trust is a personal decision that must depend on the facts of your situation, including the amount and type of assets in the trust, the intended duration of the trust, and the family dynamics involved. Your estate planning attorney can give you individual guidance to help you choose the trustee right for your needs. To learn more about how to choose a trustee, contact Gudorf Law Group to schedule a consultation.