Who should I appoint as my successor trustee?

A major decision that needs to be made when establishing a revocable trust is, who should be your successor trustee? A successor trustee is the person or people who will step in to manage your trust in the event you become incapacitated or pass away. In general, most people immediately look to a close family member or possibly friend they trust and who will likely not charge for their time managing the trust. That way of thinking is of course better than selecting someone untrustworthy or irresponsible. However, I would strongly recommend taking a more thoughtful approach when deciding who will be your successor trustee.

Here are the four factors I encourage clients to consider when selecting successor trustees. The factors listed in order of priority are:

1) Trustworthiness

2) Competency

3) Locality

4) Willingness to not charge for time spent managing the trust

Trustworthiness - We can all agree that the worst-case scenario would be for your trust assets to be stolen, squandered, or mismanaged by an unethical or irresponsible successor trustee. Therefore, you should probably not select someone who has a history of stealing, embezzlement, financial mismanagement, or someone who is financially insecure making them suspectable to dipping their hand in your cookie jar. But trustworthiness should not be limited to the idea of whether or not someone would misappropriate trust assets for personal gain. Many clients fail to consider that they would likely be equally disappointed if a successor trustee did not honor the intent of the trust purpose. What do we mean? Well often trusts, especially in situations of prolonged management, rely upon the discretion of the successor trustee(s) when making distributions to beneficiaries. In other words, are you confident that the named successor trustee will make reasonable and fair distributions to the beneficiaries according to the directions stated in the trust? Do you trust this person to factor in what you would have done if you here when making discretionary trust administration decisions? Or at a minimum to you trust this person’s independent decision making when it comes to discretionary trust administration decisions?

Competency – We must understand the role of a successor trustee before explaining competency. A successor trustee must be able to manage your trust’s financial affairs when they take over the trust. They must be able to meet with various professional advisors, understand the advice given, and perform the various tasks required in trust administration. This involves reading legal documents such as the estate plan documents, contracts, financial forms, and tax returns. Although professional advisors can assist the successor trustee to understand these documents, they must be able to possess a working knowledge of these documents. If the successor trustee is in over their head, cannot understand their duties and require professional assistance every step of the way, then the chances of trust mismanagement and trust administration costs substantially increase.

Locality – Technology has done wonders for connecting the world and allowing for a virtual presence hundreds of miles away. The days of having to physically go to a bank to close an account or meet with a CPA or lawyer in person are decreasing. So, there are numerous aspects of trust administration that can be performed remotely. But there are still somethings that a successor trustee will have to do in person. Examples could be entering a residence to obtain the original physical estate plan documents, render an accounting of personal property or remove personal property from homes or safety deposit boxes, appear before financial institutions that require an in-person interaction, etc. Now locality is a practical consideration.

You are welcome to select a person that lives out of state.

For this example, let’s say it is a sibling who will act as successor trustee. Please understand that even if that sibling would never charge for their time administering the trust, they will still be entitled to reimbursements for costs under the trust. This means transportation, meals, lodging, and reimbursements of costs they paid on behalf of the trust. This may sound reasonable to you. But the real questions is, will your beneficiaries be upset if that sibling incurred costs for three, five, ten thousand dollars because they had to travel back and forth numerous times while administering the trust. In my experience, inevitable most beneficiaries question the amount sought for reimbursement and think of ways how the trustee could have spent less. While the successor trustee typically gets upset because they are being questioned, especially if they haven’t even been paid for their time. Therefore, naming someone local to be your successor trustee has significant advantages then someone who lives further away.

Willingness to not charge for time spent managing the trust – This one is always tricky. There is the old saying that you get what you pay for. However, if you pick someone that is trustworthy, competent, and local who is willing to be your successor trustee and not charge for their time, that person is a God send. This means your beneficiaries will have more to inherit. If you have this option available to you then by all means take it. In my opinion, most people look for someone they trust and who will not charge for administering the trust. Almost as if the not collecting administration fees will compensate for competency or locality. Unfortunately, if you focus too on appointing someone who will not charge for time and services, you run the risk of causing more financial harm to the trust or worst yet harm to the family. In a situation where someone is willing to not charge for their time administrating the trust but they are untrustworthy, not competent, or not local you may end up losing or spending more trust assets then you will save. In the other scenario I have often seen situations when a family member will end up resenting their role as a successor trustee because they had to incur costs, take time off of work, or take time away from their own life and family. That resentment is compounded if the beneficiaries are demanding or ungrateful. This results in whatever family ties that remained becoming frayed or even cut.

Ultimately, everyone is in a different situation and must consider different factors when determining who should be their successor trustee. A good estate planner should help you weigh your options and consider the various factors you are facing when selecting your successor trustee. If you need assistance answering this dilemma or anything else related to starting your estate plan, I am here to help you through this process.