QUESTION:

I am in the process of creating a living trust, can you give me any guidance or advice on whom I should elect to become successor trustee after my wife and I pass on?

ANSWER:

Deciding who to designate as your successor trustee is a decision with which many people struggle. This is one of the most important decisions you will make in the process of creating a living trust. You want someone that you trust; yet you also want someone who has the same business-savvy mind that will appropriately handle your hard earned investments and other assets in your absence.

What does it take to make a good successor trustee? Everyday in carrying out the responsibilities of the successor trustee, the expertise needed includes: (1) Tax and accounting skills: A successor trustee must keep detailed and accurate records of trust assets and transactions, file tax returns and submit timely reports to the beneficiaries. (2) Investment management expertise: The typical trust is different from an ordinary investment portfolio. No two trusts are exactly alike. The trust may direct the trustee to maximize current income for a surviving spouse, emphasize capital growth to meet future family education expenses, or balance the interests of differential beneficiaries. The successor trustee must undertake this responsibility in good and bad investment markets, year in and year out. (3) Administrative expertise: The trustee must attend to a variety of routine-sounding chores that are vital to the smooth operation of the trust such as safeguarding trust assets and collecting trust income for disbursement and reinvestment. (4) Integrity: Trustworthiness is the single most important qualification of a successor trustee. A trustee must live up to higher standards that those that prevail in everyday business. A trustee must be a true fiduciary, one that can be counted on to take the full responsibility for managing investments and household finances (especially if the individual should become incapacitated).

The primary responsibility of the successor trustee is to interpret and implement the provisions of the trust agreement. To fulfill this task, the successor trustee must invest the trust's assets appropriately, distribute the trust's income and principal according to the trust instructions, prepare account statements and tax filings and maintain detailed financial records. The duty of being a successor trustee is a challenging one. The successor trustee that is not skilled in investment management should consult with experts in that area. He or she must keep up to speed on all aspects of the job including the financial markets and changes in tax laws. A successor trustee acting after your death or incapacity must be able to recognize and anticipate potential problems and deal fairly and impartially with your beneficiaries.

So, what's the solution, you are probably asking yourself. Only you can choose the best solution for you and your family. You have several choices to choose from when naming your successor trustee, but you must choose carefully. The best way to approach the selection is from a business perspective. To begin with, you should interview prospective successor trustees and ascertain their willingness to serve as a successor trustee while determining their understanding of the technical issues, liability and time involvement.

Undoubtedly, the most popular choice for the role of successor trustee is a family member or friend. This may be an option for you and your family, however many individuals don't have all of the characteristics and qualifications necessary to fulfill their obligations as a trustee. There are several solutions to combat any uncertainty you may have about choosing a family member or a friend. For example you may choose a Trust Advisor. The advisor would essentially supply non-binding guidance to the trustee and would carry none of the liability or responsibility attached to the trustee position. A Trust Advisor may be a CPA, Tax Attorney, Estate Planning Attorney, financial planner or a corporate trustee. If you are concerned that a corporate trustee (see below) would be too impersonal, consider naming an advisor for the layperson trustee to consult. Another option may be to choose a Co-Trustee. Appointing Co-Trustees can be advantageous since each trustee may have different strengths, expertise and familiarity with beneficiaries. When considering this alternative, remember that each co-trustee is liable for each other's actions.

Another choice would be to name a Corporate Trustee. A Corporate trustee will generally have greater tax, accounting and investment expertise and an abundance of resources to refer to when administering a trust. A corporate trustee may be a bank or another corporate institution. A fee of approximately 1-1.5% is generally charged for this service. Additionally, a Corporate Trustee will have in their favor managerial ability, independence from any beneficiary influence, and neutrality from personal predicaments that may be prevalent at the time of distribution.

Remember that upon your death, your trust becomes irrevocable or unchangeable after the death of the grantor(s). Fortunately for you and for the protection of your heirs, the successor trustee does not have the legal right to change your trust. The successor trustee does have the right to manage the assets in the estate, but must do so for the benefit of the beneficiaries.

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