If you are planning to set up a trust, one of the most important decisions that you will have to make is the person(s) you want to serve as your Trustee. Your Trustee will be responsible for managing the assets that you place in your trust and working with the trust’s beneficiaries. With some trusts, you can serve as your own Trustee. But many trusts, particularly those created for Medicaid planning purposes and all trusts created by your Will, require that someone else serve as your Trustee. In choosing the person to fulfill this very important role, you should evaluate the job to be done, the relationship between the Trustee and trust beneficiaries, and the purpose of your trust.
1. What does the Trustee do?
The job of every Trustee is to manage trust assets for the benefit of the beneficiary or beneficiaries. A Trustee is a “fiduciary”, meaning that the Trustee must put the interests of the beneficiaries ahead of his or her personal interests. While the job of the Trustee varies widely between trusts in terms of both specific responsibilities and time involved, every Trustee has the same basic duties: responsibly manage trust assets, make distributions to beneficiaries, and update beneficiaries about important trust activities.
While your Trustee doesn’t need to be a financial professional, he or she should be financially competent. He or she will need to keep records, file tax returns, and make investment decisions. A Trustee can, of course, hire professionals to assist with trust management.
2. Who are the Beneficiaries of Your Trust?
Your Trustee will be working closely with the trust beneficiaries, so it is important to consider the relationship between the Trustee and trust beneficiaries. Ideally, the relationship should be positive and mutually respectful. While the Trustee must comply with the terms of the trusts, many trusts grant the Trustee a lot of discretion to either make or decline to make a distribution of trust assets. Your Trustee might have to say “no” as well as say “yes” to requests for distributions.
If your beneficiary is a young child, then a parent, aunt, or uncle of your beneficiary might be a natural fit to take on the role of Trustee.
If your beneficiary is a cognitively impaired older adult, then an adult child of your beneficiary might be a good choice to serve as Trustee.
If your beneficiary is an adult with financial problems, the choice is less clear. A parent of your beneficiary might die or become incapacitated while the trust is still in effect. While a financially responsible sibling of your beneficiary may be a workable option, you should consider the potential impact on the sibling relationship of having one sibling serve as Trustee for the other.
3. What is the Purpose of Your Trust?
There are infinite reasons to create a trust. Your Trustee should both understand and support the purpose of your trust. For example, if the purpose of the trust is to enable your beneficiary to qualify for Medicaid or other government needs-based benefits, your Trustee should be willing to learn about these programs and commit to making distributions in a manner that is consistent with program requirements. If the purpose of the trust is to provide financial management for a beneficiary who is financially irresponsible, your Trustee should be willing to say no to requests for inappropriate distributions. If the purpose of your trust is to provide for your pets after your passing, your Trustee should like animals.
4. Is a Professional Fiduciary Right for My Trust?
Some people are lucky to have many people in their lives who would make excellent Trustees; others are not. Maybe you are concerned about the impact on family relationships of having one family member serve as Trustee for another. Maybe your preferred Trustee declined to serve. If this is your situation, consider hiring a professional fiduciary. Professional fiduciaries charge a fee, and some may only agree to administer sizable trusts. As with non-professional Trustees, you might have to interview a few candidates before finding a good fit.
Once you have a candidate in mind who you think would be a good fit to serve as your Trustee, you will need to talk to that person to make sure that he or she is both willing and able to do the job. Even if you nominate someone as Trustee, that person can, of course, decline to serve. Make sure that your intended Trustee is willing and able to serve before finalizing your selection.