Choosing A Trustee
How do most people choose a trustee? What process will they follow to pick a candidate for a job which involves the proper handling of attorneys, bank officers, gun collections, and possibly millions of dollars?
Usually, mom and dad sit around the kitchen table filling out estate documents. They come to the blank for filling in the trustee’s name. Who will they choose to execute their will and trust when they fall ill or pass away?
“Well, I don’t know,” says Dad. “Of the three kids, Johnny’s the oldest. We’ll pick him as trustee. It should be the oldest, right? As an honor?”
Then the documents are filed away in a drawer for thirty years, and pulled out only when both mom and dad have died.
Well, Johnny was a great guy at twenty-one, but will he be the right person to manage an estate as trustee at fifty one? Does he have the time, the drive, and the integrity to do this right?
Thirty years later, maybe Johnny himself isn’t so sure. Maybe Johnny has grown into a super-busy businessman with little time or interest in his parent’s trust.
Or, maybe Johnny hates paperwork and lives on a fishing boat in Tampa Bay, without a phone.
THREE’S A CROWD
Then again, back at that kitchen table thirty years earlier, maybe mom and dad just couldn’t decide. Maybe they didn’t want to make any of their kids angry, so Mom said, “I know, let’s name all three of the kids as joint trustees!”
Now, all these years later, when the three kids are middle-aged, they have a serious problem. Now they see each other as three cooks in the same, ugly kitchen.
Johnny and Eddie never agree, so Lisa usually has the veto, and she usually goes with Eddie. Anger frequently flares, and it’s not really the kids’ fault. Anytime you have more than one trustee, it’s tough to make any big decision. Even tough to see the decision through.
Should Johnny, Eddie, and Lisa sell the family land in Hawaii to a developer? With only one trustee, a decision can be fast. But with three, things can get complicated and stay complicated.
Say that Eddie and Lisa agree to sell. As a majority, they sign the papers, and the process of the sale begins. But Johnny hates the idea of cutting down all those coconut trees, and refuses to sign. The company buying the land gets nervous. Sure, they’ve won a majority vote among the trustees, but what if that one rogue trustee goes off and does something to block the sale down the line? The buyers may think, “Unless all three trustees sign off, we’d better look elsewhere.”
A good attorney would have advised mom and dad to choose a single trustee—sometimes two if they get along. And an attorney would have advised them to update their estate plan as their kids grew and their circumstances changed. That one, cozy, kitchen table session just wasn’t enough.
GO WITH EXPERIENCE?
When people sit down to choose a trustee, they must sometimes choose between a family member with no experience and a family member who has administered a trust before. Both situations may present an issue.
Someone who has never administered a trust may be starting blind. But someone who has done it before may be burned out. Here’s a common situation:
Mom and dad sit down at the kitchen table to fill out their trust documents, and Mom says, “Well, my sister was the trustee for my mother, and she was the trustee for both my brothers’ estates. She’s done this three or four times, so she’s an expert by now. I want to name her.”
Well, she’d better check with her sister, because her sister may not want the job. I have plenty of clients who come in and say, “Darn it (or a much stronger expletive), this is the fifth trust I’m going to have to administer, and everyone keeps naming me, because I’m the person in the family who apparently does all of this. Well, sorry, I don’t want to do trust administration anymore. It’s a pain in the ass. I don’t want to spend the final years of my life handling everyone else’s estates. I’d rather garden. Or head off on a cruise. Or just about anything else. How can I get out of this?”
MORE FACTORS TO CONSIDER
Regardless of experience, do not name someone as trustee “to honor” them. Name someone who you believe to be trustworthy and responsible.
Let’s start with that word “responsible.” Merely “well intentioned” will not cut it. You want someone who can get the job done.
If you don’t have a friend or family member you consider responsible, what I call a “civilian,” you may want to consider a “private professional fiduciary.” These are people who hold themselves out to the world as professional trust administrators. Some states actually have a registry for private professional fiduciaries and may require them to act under a bond (see below for more on bonds). Some states don’t regulate the profession at all. A trustee has tremendous and independent power, so if you go the professional route, do your due diligence.
Whether you choose a civilian or professional trustee, consider everyone’s age carefully.
If you are in your fifties or sixties, and you name a trustee about your same age, remember that that person will age right along with you. It’s likely that you will have reached your eighties or nineties by the time you need your trustee.
A trustee who’s also eighty or ninety years old may be in worse shape than you. Or already gone.
Professional fiduciaries are often second-career folks who start in their fifties, so they may not be around when the time comes. You may be dealing with their successor, or they may have named no successor at all. As part of choosing a private professional, you must ask, “What is your succession plan? Who’s the next person in line? What happens if you are hit by a bus?”
If you choose any individual, you must review your choice periodically. People change. Their circumstances change. They pass away.
What happens if you cannot find the right person for the job? Stay tuned next week for our blog on Trust Banks as we answer this question for you. And as always, if you have questions or are ready to begin your estate planning, contact us today!