Selecting The Right Successor Trustee by Shelly O’Byrne
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Those of us in the estate planning industry often have the unique role of helping our clients decide who will handle their affairs when they become incapacitated or pass away. Choosing a successor trustee is an emotional and difficult decision for the client, but those of us assisting them sometimes do not take it seriously enough. While we don’t want to tell them whom to choose, we can guide them by asking the right questions as they go through the decision-making process. Depending on who is selected, we should ensure that the trust document contains enough information to impart the trustor’s true goals and desires to the successor trustee and beneficiaries.
What’s the intention for setting up the trust? Is it to provide educational funds for future generations, to create a safety net against severe economic risks or to pass assets to heirs while providing protection from creditors or divorcing spouses? If the trust explains the intended goal, the successor trustee will know what the trustor wanted to accomplish. Is there any guidance written into the document other than standard boilerplate language?
Even with a well-drafted trust, the successor trustee will be required to make decisions that will impact the beneficiaries. The individual best suited to make these decisions depends on the family dynamics, which can vary dramatically. The right trustee can mentor the beneficiaries and grow and protect trust assets. The wrong trustee can cause financial disarray, misappropriate funds and potentially destroy family relationships.
A family member is often the initial choice to be a successor trustee, but a corporate trustee or an individual professional fiduciary can be a good option depending on family circumstances. In making the decision, there are six factors to consider:
- Impartiality – A successor trustee must be fair to all the beneficiaries and should neither play favorites nor let personal resentments get in the way of their duties. Is the successor trustee aligned with the trustor’s values and those of the beneficiaries? Are they willing to abide by the trust document even though they or the beneficiaries may not like the terms?
- Organization – A successor trustee will need plenty of recordkeeping, bill paying and accounting skills. They will need to stay on top of many issues simultaneously.
- Communication – Constant communication with beneficiaries is of utmost importance. Lawsuits occur because of too little communication, and mistrust breeds when beneficiaries start wondering what is happening with trust assets. Also, consider the impact that children’s spouses will have on the family relationship. Spouses can have significant influence over issues involving money.
- Integrity – Your client won’t be around when the successor trustee takes over. The individual chosen should not be someone vulnerable to temptation to skim from trust funds for their own benefit and should be financially stable enough to not be tempted. Unfortunately, most financial elder abuse is committed by those closest to the victim, and trusts don’t have much oversight unless the successor trustee is a large organization.
- Financial experience – The trustee needs to manage trust property and investments or be responsible for selecting the individuals who can do so.
- Emotionally preparation – A successor trustee takes over when the trustor becomes incapacitated or immediately following the trustor’s death. This is a demanding role to take on during a time of grieving for the family. Tensions often run high, and the successor trustee can feel under attack by the beneficiaries.
Of course, even when the perfect choice is clear, life changes happen and when the time comes, the successor trustee may not be willing or available. Generally several successor trustees are named in order, and co-trustees are often nominated. However, even starting with a co-trustee relationship can be a good solution. Corporate trustees who have the specialized skills and trust knowledge can work alongside a family member who knows the family dynamics.
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