Successor Trustee Part 1

SELECTION OF A SUCCESSOR TRUSTEE [PART I]

Who should I select as a trustee?

That's a question with no easy answer. You could name an individual or a financial institution.

But wait a minute, what does a trustee do? Isn't it about paperwork, investments, and management?

Yes, and much more.

You see, a trustee basically steps into your shoes. That means that they must decide who and what to pay, where to invest assets, determine whether to incur a debt, be accountable to you and to other beneficiaries, and, on occasion, make instantaneous decisions keeping your interests in mind.

Isn't this a lot of work?

Yes, and that's only the beginning.

They are under the microscope by the beneficiaries. While you can make the decisions on the run, a trustee cannot. They should (in most cases) have a written investment plan. And then there is the question: Did they make the right decision. That's where the Prudent Investor Rule comes into play. (We won't discuss that now, but that's something that will be the subject of another installment in the selection of a trustee).

Can I name a friend or a relative?

Yes, you can name your spouse, child, friend, relative, or the next door neighbor. But they may not possess the qualities you want in a trustee. That's where a financial institution with trust experience might be your best choice.

Huh?

Ask these questions: Would you trust them with your money? Do they know how to invest? Can they mediate differences between family members? Do they have the time? Are they too busy to care for my needs? Do they really care about me or the beneficiaries? What will they charge? Are they trustworthy? Are they available only during office hours? What happens if my beneficiary wants to call them at home? Will they follow my instructions? What happens if the stock market declines, how will they react?

So, let's look at a summary of what we have done so far.

A successor trustee is the person or institution who takes over the management of your trust property if you become incapacitated and when you die. Your successor trustee should be knowledgeable about financial matters, be trustworthy, and know how to manage and invest the trust assets, and care about the beneficiaries of the trust.

You should choose your successor trustee(s) based on the purpose of your trust. If you want the trustee to oversee the distribution of assets to minor children and young adults, you will want someone who will be sensitive to the beneficiaries and who cares about them. If the only purpose of your trust is to avoid taxes, you might want to choose the trustee with the best investment experience. If you want both qualities, you might appoint joint successor trustees.

Trustees are entitled to reasonable compensation for their services. Your trust document should provide guidelines. Successor trustee is a huge responsibility and can be a time-consuming burden.

Naming the best choices for your successor trustee within your revocable living trust will help ease the transition when you are unable to handle your own affairs.

Wow! What else should I consider?

Plenty. That's why you need to draft a trust document with your instructions. And it takes time, both from you and the attorney.

Should the trustee distribute only the income, that is, don't distribute the principal? What about wedding expenses or a business? What about a house?

I never thought about it that way. Yikes!

A trust is more than words; it's a blueprint for you and family.

Don't you think my family members will take care of each other?

Too many people sign their Will or Trust without considering the consequences. Why? We live in a fast paced world, and too many of us fail to sit down and consider all the ramifications.

At what age, should your children receive an inheritance?

How about 21?

Isn't that young? Consider whether they would be responsible at age 21. Remember you left the instructions to the trustee. Maybe we should consider ages 25, 30, and 35. You may want to add provisions in the trust that the children have met certain goals: graduated from college or are established in their career for example, before any inheritance is awarded. Also if the children are not responsible, consider withholding awarding any money until a later date. Like three strikes and you're out.

Okay, that sounds better; I think I'll rest a little.

Nope, we've got to review other items: health, education, support, taxes, income, principal, types of investments. [To be addressed in a future installment of Selection of a Trustee]

If you would like more information about Pennsylvania Elder Law, Business Law or Tax Law, please contact an experienced Pennsylvania Attorney who is also a Certified Public Accountant (CPA) via email or phone us at (724) 216.6551 at our Greensburg, Pennsylvania office.

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