by San Francisco Estate Planning Attorney

How should I choose the successor trustee for my living trust? Should I name more than one trustee for my trust? 

One of the most important decisions you will make when you plan your estate is not “what” or “how” but “who.” Who will you choose as successor trustee of your revocable living trust? If you are married, the first successor trustee will likely be your spouse. But what about when you both pass away? Who will be responsible for the administration of your trust? Who will divide your assets fairly? Avoid arguments? Guard your assets wisely? Let’s look at the issues around the appointment of a successor trustee.

Executor vs Trustee: What Is the Difference?

People often confuse the roles of trustee and executor in an estate plan. If you have a properly executed trust, then the person with the authority and responsibility to administer your trust (and only your trust) is the trustee. The executor is the person with the responsibility and authority to execute your will (and only your will).  The Army has soldiers, and the Navy has sailors – similar roles, different names.  It’s the same with a successor trustee vs an executor.

Ideally, a trust will be the foundation of your estate plan where many, but not all, assets accumulate.  Your IRA, 401(k), TSA, Annuity, and Life Insurance typically stay out of your living trust.  The trustee can take control of them on behalf of your beneficiaries. With a living trust, you will also have a “pour-over will” which moves certain types of assets into the trust when you die, if those assets are not already in the trust.

It’s the responsibility of the executor of the pour-over will to make sure that the proper assets get moved into your living trust. And usually, if you have a living trust, you will designate the same person to act both as trustee and executor of the pour-over will. Both of these people should know that even in well-constructed estate plans, a probate process may still be required to move some assets into the living trust.

Should I Appoint the Same Person as Executor and Trustee?

Maybe and maybe not. In some cases, it may be best to have a different person as the executor of your will and trustee of your living trust. That’s a decision to make with a qualified attorney. But essentially, when comparing a successor trustee vs an executor, know that one exclusively handles the administration of your trust while the other is responsible for executing your will.

What Are My Options in Naming a Successor Trustee for My Estate?

These are five basic options to consider when you name a successor trustee for you or you and your spouse:

  1. A single individual, such as a highly-responsible adult child
  2. Two co-trustees or even multiple trustees who get along extremely well

If you name family members or other non-professionals as trustees, you should strongly suggest they engage a trust administration law firm like San Francisco Estate Planning Attorney to help them with the legal and accounting issues.

Then there are the professional options:

  1. A Private Professional Fiduciary
  2. A Trust Bank
  3. A Trust Company

Let’s look at the pros and cons of these options—starting with a reminder that whatever choice you make, you should revisit that choice frequently as people and circumstances change greatly over time.

You will also need to name backup options (second successor, third successor, etc) if any of your first choices declines the job or is unable to serve.

Many People Don’t Give Enough Thought to Choosing a Trustee

How should you choose a trustee? What process should you follow to pick a candidate for a job which involves the proper handling of attorneys, bank officers, gun collections, and possibly millions of dollars?

Usually, mom and dad sit in the attorney’s office and when the attorney asks who mom and dad want to name as their successor trustee (when mom and dad can’t serve) they get a blank look on their faces and ask the attorney what they should do. Who should they choose to execute their will and trust when they fall ill or pass away?

“It’s up to you,” says the attorney.

“Well, I don’t know,” says Dad. “Of the three kids, Johnny’s the oldest. We’ll pick him as trustee. It should be the oldest, right? As an honor?”

Too often, the attorney simply nods, prepares documents, mom and dad sign, and the papers are filed away in mom and dad’s drawer for thirty years—to be pulled out only when both of them have died.

Well, Johnny was a great guy at twenty-one, but will he be the right person to manage an estate as trustee at fifty-one? Does he have the time, the drive, and the integrity to do this right?

Thirty years later, maybe Johnny himself isn’t so sure. Maybe Johnny has grown into a super-busy businessman with little time or interest in managing his parents’ trust and wrangling with siblings.

Or, maybe Johnny now lives on a fishing boat somewhere in Tampa Bay, hates paperwork, and doesn’t own a phone. He may be hard to find. And when he’s found, he may be exactly the wrong person for the job.

Joint or Co-Trustees Can Be a Bad Idea

Then again, back at the lawyer’s office thirty years earlier, maybe mom and dad just couldn’t decide. Maybe they didn’t want to make any of their kids angry, so Mom said, “I know, let’s name all three of the kids as joint trustees!”

Now, all these years later, when the three kids are middle-aged, they have a serious problem. Now they see each other as three cooks in the same, ugly kitchen.

Johnny and Eddie never agree, so Lisa usually has the veto, and she usually goes with Eddie. Anger frequently flares, and it’s not really the kids’ fault. Anytime you have more than one trustee, it’s tough to make any big decision. Even tougher to see the decision through.

Should Johnny, Eddie, and Lisa sell the family land in Hawaii to a developer? With only one trustee, a decision can be fast. But with three, things often get complicated and stay complicated.

Say that Eddie and Lisa agree to sell. As a majority, they sign the papers, and the process of the sale begins. But Johnny hates the idea of cutting down all those coconut trees and refuses to sign. The company buying the land gets nervous. Sure, they’ve won a majority vote among the trustees, but what if that one rogue trustee goes off and does something to block the sale down the line? The buyers may think, “Unless all three trustees sign off, we’d better look elsewhere.”

A good attorney might have advised mom and dad to choose a single trustee—sometimes two if they get along.

And a really good attorney would have advised them to update their estate plan as their kids grew and their circumstances changed. That one cozy kitchen-table session just wasn’t enough.

Should You Choose a Trustee with Experience?

When people sit down to choose a trustee, they must sometimes choose between a family member with no experience and a family member who has administered a trust before. Both situations may present an issue.

Someone who has never administered a trust may be starting blind. But someone who has done it before may be burned out. Here’s a common situation:

Mom and dad sit down at the attorney’s office to get their estate plan in order, and Mom says, “Well, my sister was the trustee for my mother, and she was the trustee for both my brothers’ estates. She’s done this three or four times, so she’s an expert by now. I want to name her.”

Well, she’d better check with her sister, because her sister may not want the job. I have plenty of clients who come in and say, “Darn it (or a much stronger expletive), this is the fifth trust I’m going to have to administer, and everyone keeps naming me because I’m the person in the family who apparently does all of this. Well, sorry, I don’t want to do trust administration anymore. It’s a pain in the ass. I don’t want to spend the final years of my life handling everyone else’s estates. I’d rather garden. Or head off on a cruise. Or just about anything else. How can I get out of this?”

Should I Honor Someone by Naming Them Trustee?

Regardless of experience, do not name someone as trustee “to honor” them. Name someone you believe to be trustworthy and responsible.

Merely “well-intentioned” will not cut it. You want someone who can get the job done.

Private Professional Trustees, Trust Banks, and Trust Companies

If you don’t have a family member or close friend you consider responsible, whom I call a “civilian,” you may want to consider a “private professional fiduciary.” These are people who hold themselves out to the world as professional trust administrators. Some states actually have a registry for private professional fiduciaries and may require them to act under a bond (see below for more on bonds). Some states don’t regulate the profession at all.

A trustee has tremendous and independent power, so if you go the private professional route, do your due diligence.

Another option is a trust company or a trust bank. If you are working with a specialized estate attorney, they can likely recommend one of these to you.

Let’s look at these options.

Consider the Age of Your Trustee Carefully

Whether you choose a civilian or professional trustee, consider everyone’s age carefully.

If you are in your fifties or sixties, and you name a trustee about your same age, remember that that person will age right along with you. You will likely have reached your eighties or nineties by the time you need your trustee. A trustee who’s also eighty or ninety years old may be in worse shape than you. Or already gone.

Private Professional Fiduciaries are often second-career folks who start in their fifties, so they also may not be around when the time comes. You may be dealing with their successor, or they may have named no successor at all. As part of choosing a private professional, you must ask, “What is your succession plan? Who’s the next person in line? What happens if you are hit by a bus?”

Let’s Talk About Honesty of Trustees

The chief advantage of naming a trust company or trust bank is simple. They won’t steal from your trust. I consider this a big plus. Why? Because the chief disadvantage of naming any individual, civilian or professional, as your trustee is equally simple. He or she can easily steal from your trust. Why? Because although they are legally bound by the terms of the trust, in practice no one except the beneficiaries of the trust will be watching what they do—no court or police typically oversee the actions of a trustee. And no close accounting is typically made unless someone decides to sue that trustee.  It can be stealing candy from a baby – literally.

I always urge my clients to create a living trust to avoid probate court. But yes, in a court proceeding, other people are at least watching. Indeed, with a court-supervised proceeding, any executor who is named for an estate must typically operate with a bond and account to the court.

A bond is not exactly a form of insurance, but if the executor of a will steals the money in your estate, the bonding company will replace the money. If the bond is for $100,000 and the executor steals $100,000, the bonding company will deposit $100,000 back into the estate. After that, of course, the bonding company will go after the thief to get the money back.

Trusts with named trustees do not typically operate with bonds. And yes, thefts by the executors of wills and the trustees of living trusts do occur.

Is Anybody Watching a Trustee?

In the story about the gambling executor, it turned out that she stole the money and blew it in less than a week—but the court found out because it was a supervised probate.

If a trustee without a probate process decides to steal from a trust, actually holding her accountable for her crime can take a year or longer with a trust as opposed to a will going through probate court. She could drain tens of thousands of dollars in a way that no one notices. No lawyers or judges will be around to see it happening.

I tell you all this to drive home the importance of your selection process. The power and independence of trustees provide the key benefit to living trusts, but that same power and independence mean you must choose your trustees very wisely, indeed. If you have the slightest doubt about a potential trustee, appoint a different successor trustee.

Take Your Time Choosing Trustees, Discuss It with Them!

The bottom line? Take your time choosing your successor trustees. Before you appoint a successor, discuss your choice with them, and make sure they are on board with the responsibilities you intend to give them. Consider writing an extensive letter of instruction to accompany your will and trust giving instructions and advice to your future trustee—including the possibility of engaging a trust administration firm.

But the very best trustees, trust banks, and trust administration lawyers will be helpless if the trust has become obsolete by the time it has to be administered.

What Do We Do as California Estate Planning Attorney Specialists?

The San Jose Estate Planning attorneys and staff at Credere Law help people plan for when the difficult times come.

Make an appointment to meet with Credere Law for Estate Planning, Probate and Trust Administration. We offer in-person, phone, and Zoom appointments. Just call (650) 308-8624.

 

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