Finding a trustee for your estate plan is tricky. If you choose someone who isn’t up to the task, you won’t be around to correct them.
On the surface, the job is simple. You name which assets go to whom and under what conditions. The trustee just has to execute. So, as with any trust designed to protect your investments, you need a trustee you can, well, trust. You may also want to see our Trustee Vs. Executor article.
In order to pick the right person, consider the following:
Now that you have found a trustee who can educate and entertain, you need to make a plan for your estate. Once again, you need to choose the right trustee for the job.
Here are a few things to consider.
If it’s not extremely large, you can probably entrust its distribution to a family member. Unless of course merciless thieves populate your family, in which case you may need outside help. Sometimes family member receive a small honorarium for their services, but this job is largely pro bono. That’s right, you can keep taking advantage of your family even after death.
Now that’s a haunting.
When an estate is worth over 10M, you may want to name a company or a bank as the trustee. Absolute power corrupts absolutely and every family has a Mr. Burns buried somewhere, just waiting to get their hands on the cash so they can “release the hounds."
If you appoint a company or bank, this will cost…a lot. This means it’s only practical for larger estates. It’s also a lot to hoist off on your daughter, even if she is majoring in finance.
You may also want to appoint a non-family member or friend as a trustee simply so that your estate doesn’t tear the family apart. It can get ugly when one family member is dividing up wealth amongst the others. See: KING LEAR.
This one should seem obvious, but a lot of people make posthumous financial decisions with their heart instead of their head. Whether it’s your wife, your child, or a friend, you need to make sure that your trustee is organized, responsible, and financially sound.
Families are made up of people and people get into disagreements. They are flawed units made up of flawed people. Every gold digger and delinquent in the world belongs to somebody’s family. If you have any in yours, keep them away from your finances when you’re gone.
Generally, family members act as trustees without compensation, but you can leave them a little something for their trouble. A little bonus out of the estate might motivate them to do a better job. You’re son also tends to do a better job on the lawn when he’s receiving an allowance.
If you are naming a child as a trustee, you are probably naming them as an heir as well. Don’t sweat this one too much. The trustee is bound to the terms of the trust, so if you are thorough, there is very little that can be done to abuse the trustee position for personal benefit.
Sometimes it’s important that several people are trustees. Once again, family members are people, and people are petty. You don’t want to bruise egos that are in the middle of grieving.
Multiple trustees are fine, but make sure that you are specific about authority and responsibility. Your death might leave a financial rat’s nest. One monkey will take long time to untangle it. If you involve multiple monkeys you might turn your funeral into a mud-slinging contest. When you're estate planning, you can be the circus ringleader who prevents these issues.
Most people will name a child as trustee. Siblings and close friend of the family are common choices where the children are too young. Keep in mind; this is more than just the distribution of your wealth. This is the evolution of your legacy. Make sure you have chosen the right captain to steer the ship.
Take care of your family’s future. Choose a capable trustee. For much more information and a look at things from the trustee's point of view, read up on trust executor duties.
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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