Select Trustees with Care


Gregory S. DuPont, JD, CFP June 27, 2023

Whether you are reviewing your existing trust or creating a new one, you should understand the important role that a trustee plays. Trustee(s) are in charge of handling all aspects of your trust. So, it is important to select your trustee(s) carefully. By better understanding the responsibilities of a trustee, you'll be better equipped to select the right person for the job.

What is a trust?

A trust is a legal structure that you set up to manage your assets. In the context of estate planning, they are often used to control and distribute your assets after you pass away. But, they are sometimes used to control your assets while you're alive. When you create a trust, you will define the distribution terms for your beneficiaries and also name the trustee.

What is a trustee?

A trustee is a trusted decision maker who is tasked with handling all matters that relate to your trust. Depending on the type of trust, you could be the trustee in the beginning. You should then name a successor trustee to act when you're unable to manage the trust. Other types of trusts require you to name a separate trustee to act immediately. These types of trusts often offer tax benefits and/or protection from creditors.

What types of trustees are there?

When creating an estate plan, there are several types of trustees to consider.

An initial trustee is the decision maker that immediately starts managing the trust’s accounts and property. You may choose to be the initial trustee if you create a revocable living trust. However, for some types of irrevocable trusts, you will need to select someone else to be the initial trustee.

The successor trustee is the next in line to manage the trust. This person may need to act because the initial trustee becomes incapacitated, dies, or steps down.

You could choose to have one trustee handle the entire trust. You could also choose to name multiple trustees, such as a distribution trustee and an investment trustee. You may also have subtrusts within the larger document. For example, you may name your children as the trustees for the subtrusts that are created for their benefit at your death. In this instance, there may be several trustees acting once the subtrusts are created. However, they will only be responsible for their separate trust and will have no control over other subtrusts that have their own trustees.

What does a trustee do?

Being a trustee involves many different important tasks, including the following:

  • Managing accounts and property owned by the trust. Although the trust owns your accounts and property, a person needs to carry out most transactions. If the trust owns an investment account, the trustee must watch the investments and request any adjustments.

  • Keeping the trust beneficiaries informed about the trust. The trustee is required to act in the best interest of the trust beneficiaries. By law, they need to periodically inform the trust beneficiaries about the status of the trust. For example, what the trust owns, how much the trust is worth, what income the trust has received, etc.

  • Acting as a point person for trust matters. If beneficiaries have questions about the trust, the trustee is usually best suited to answer them. They are also in charge of filing tax returns and take part in any lawsuits involving the trust.

What should you look for when selecting a trustee?

It may be helpful to select a trustee that is financially savvy or has a background in tax, law, or finance. But, your trustee isn't required to have these qualifications. When considering potential trustees, we recommend looking for someone with following qualities:

Ability to ask for help when needed. The trustee doesn't have to be an expert in every area of trust administration. But they should have a trusted financial advisor, tax preparer, and estate attorney to help them.

Be detail oriented. Specific legal steps must be taken throughout the trust administration process. The trustee will be asked to compile a list of everything that the trust owns and keep accurate records of income and expenses. Being too general with this information can cause tension between the trustee and beneficiaries and could lead to legal action.

Be organized. Depending on what the trust owns, how many beneficiaries there are, and the trust distribution plan, there can be a lot of moving parts. In addition to managing the trust, the trustee will need to make sure that they don't mix their personal affairs with the trust.

Have good communication skills. Although the trustee has authority over the trust, they need to act in the best interests of the beneficiaries. It is important that the trustee clearly communicate with the beneficiaries. They should deliver necessary information, and be available to answer any questions in a timely manner. A trustee must also be able to get along well with the beneficiaries.

Follow rules. State and federal laws, as well as instructions within the trust, must be followed. While a trust may have provisions that allow a trustee to use their discretion in some matters, there are other instances in which the trustee is required to do certain things in a specific way. Failing to comply with the rules can subject the trustee to potential litigation.

Who should you choose to be your trustee?

You have several options with selecting a trustee. Consider your unique circumstances and what your goals are. An experienced estate planning attorney can help you decide.

● Family members. It is common for clients to select family members (spouse, child, parent, sibling, etc.) to be their trustees. Family members likely have an intimate knowledge of your wishes and values, making trust administration easier if you want to leave decisions to your trustee’s discretion. If your trustee is also a beneficiary, they could choose not to accept any compensation for acting as trustee because they will already be receiving benefits. However, allowing the beneficiary to be the trustee of your trust could jeopardize or limit protection of their inheritance. You'll also want to put directions in place to minimize family conflict.

Close friends. Close friends likely understand your values and wishes, making discretionary decisions easier. But, depending on your family dynamics, your close friends may not want to get involved in any conflicts that arise. On the flip side, having a third party make decisions can lessen feelings of family 'favorites' and lessen conflict. If your close friend is not a trust beneficiary, they may want to be compensated for the work they do, leaving less funds for your beneficiaries.

Professional third party. If protecting your beneficiaries’ inheritances is important to you, a professional may offer extra protection. Because administering trusts is their profession, they will likely understand every step that must be taken and have the tools to efficiently and accurately do so. However, because trust administration is their job, they will require compensation. They will inform you of their fee. This amount will likely be higher than what a family member or close friend would seek for compensation.

The Experienced Estate Attorneys at DuPont & Blumenstiel in Dublin, OH are here to help.

We understand that you have an important decision ahead of you. We are here to guide you through the decision-making process and answer any questions you may have along the way. Call us at 614-408-0529 schedule an appointment so we can help you check this item off your to-do list.

Curious about how a trust fits in with the rest of your estate plan? Download our Consumer's Guide to Estate Planning in Ohio here.