February 1st, 2020
All trusts need a designated person to manage the trust assets. This person is called a trustee. Since we know it can be daunting to decide who to choose, this month we address important considerations when choosing a trustee.
For a revocable living trust, the trustee is generally the grantor – the person(s) who created the trust. The individual continues to manage the trust as if the assets were in their name after they realign their assets with their trust. The trust also names a successor trustee for incapacity or death. For married couples, they often serve as joint trustees, with the surviving spouse serving as the sole trustee if the other spouse passes away. If neither spouse can serve as trustee, it is often one of the trusted adult children who do so.
For those persons who do not have trusted, adult children to serve as trustee, they may name a trusted friend or relative, or even a professional such as a bank or accountant as trustee. It is important to have a forthright discussion regarding your concerns about the management of your trust assets and their duties as trustee. Trustees are entitled to compensation so be familiar with their fees prior to naming them in your documents.
If you are setting up an irrevocable trust, you will not be the initial trustee in order to meet asset protection requirements for future Medicaid or Veteran’s benefits. We find this plan works best when an individual or couple has at least one trusted, responsible, adult child; however, it can still work as long as you have another relative or entity you trust to serve for you. Since you can’t receive distributions directly from this trust, you should be comfortable asking this person to complete the return of gift process if necessary. Return of gift is when a beneficiary receives a distribution from the trust and then returns it to you, the grantor. Your trustee would likely be overseeing the potential future sale of your home, and potentially the purchase of a new home if you wanted to downsize as well.
Generally, we want a trustee to be able to do whatever you could if you were able to act so that there are no delays in an emergency. This is why you want to make sure you have named someone you trust! They do have a fiduciary duty, meaning they must act in its best interest and in the best interest of the beneficiaries.
A trustee may resign if they are no longer able or willing to act, or they can be removed if they fail to fulfill their fiduciary duty. Many trusts allow a beneficiary to call for the removal of a trustee. Additionally, naming a trust protector ensures the trust continues to operate as intended despite law or circumstance changes. For instance, if all your successor trustees predecease you and no one is left to serve, a trust protector can step in and appoint someone to act as trustee so that the trust may continue to operate appropriately. A trust protector is usually a professional like an attorney.
We know it’s a big decision to decide who is in charge of your hard-earned assets, but once you do, you will have peace of mind knowing you have named someone you trust to carry out your clearly stated wishes. Once your documents are in place, you are ready to work on realigning your assets to fit your new plan which will be our topic for next month!