Once you have chosen to use a trust as a component of your estate plan, how do you choose who should be the successor trustee after you, and perhaps, your spouse? There are three key considerations that I recommend in the selection of a successor trustee. One is the duties and responsibilities of a trustee, and the prospective trustee’s knowledge, skill and time to carry out such duties. Another is a prospective trustee’s disposition in working successfully with beneficiaries. And lastly is your level of trust in the prospective trustee to manage the trust funds for the benefit of your chosen beneficiaries and according to your expressed desires.

Among the primary duties and responsibilities of a trustee is the need to choose appropriate investments given the trust purposes and to manage a business (if it is a trust asset). The trustee should therefore be competent and prudent in those areas. The trustee should also understand income and estate tax matters, given that many decisions involve tax consequences, and because managing trust assets (perhaps of many different asset classes) is another key responsibility. Some trusts provide the trustee discretion to convert a beneficiaries’ separate trust share into a special (or supplemental) needs trust if a beneficiary is disabled and able to benefit from State assistance programs. So, knowledge of, or time and ability to learn, Medicaid and other State programs may also be important. Additionally, knowledge of trust and estate law is helpful for handling complicated issues such as:

1. The timing of distributions;
2. The determination of which assets to sell based on their cost basis for the purposes of making trust distributions, expense payments, and tax payments, without unnecessarily incurring more tax consequences;
3. The legal interpretation of the distribution terms and conditions of the trust; and
4. The investment requirements to balance the needs of the present income beneficiaries with those of the remainder beneficiaries.

Typical duties and responsibilities of a trustee from the legal perspective are to do the following:

1. Take possession of the trust property, keep it in the trustee’s custody as a fiduciary (hold the trust property separate from that of the trustee’s property), and manage it in accordance with the trust.
2. Comply with orders of the court, if any, that control the trust estate.
3. Safeguard, preserve and protect the trust property against loss, dissipation or diminution; and likewise, execute any proper contracts, incur debts and make expenditures as are necessary and proper, including prosecuting and defending any suits and court proceedings to protect the trust property.
4. Insure the trust estate.
5. Make improvements to trust property as authorized by the trust
6. Perform the trust administration loyally and faithfully.
7. Do not delegate to another, other than purely ministerial powers.
8. Do not exercise in self-dealing; at all times the trustee must act in the interests of the beneficiaries according to the trust terms.
9. Do not privately use, apply or appropriate trust property, unless with express consent of all beneficiaries.
10. Maintain the prudent person standard (how a person of prudence, discretion and intelligence would manage his/her own financial affairs) and exercise due care and skill while acting as trustee.
11. Be fair in any dealings with the beneficiary.
12. If a business is part of the trust property, conduct the business as required by the trust and according to its grantor’s intentions.
13. Do not commit waste – the trustee must make the trust principal productive.
14. Do not conduct risky investments. Rather, follow the prudent investment rule (a legal doctrine that requires a fiduciary to prudently assess risk and return when investing). Thus the trustee must exercise the care, diligence and skill of an ordinary prudent person in making, retaining, disposing or changing trust investments. Advice of a financial planner is preferable.
15. Do not commingle trust funds with that of the trustee’s own funds; keep trust funds in a reputable banking/investment institution titled appropriately as trust assets.
16. Distribute trust property appropriately to the beneficiaries according to the trust terms.
17. Keep accurate records and file all required income tax returns. Working with an accountant is preferable.
18. Keep and render to beneficiaries a full and accurate record and accounting of the trust assets and investments according to the trust terms or court decree.
19. Seek appropriate professional advice – legal, accounting, financial, realtors, appraisals, etc. – as is appropriate to adhere to the trustee duties at all times.

In addition to possessing the requisite knowledge and skills to manage trust assets, the trustee must also have a suitable disposition to competently serve in this role. In working with the trust beneficiaries, a trustee must be capable of navigating factors such as age, maturity, health issues, marital influences, and risky lifestyle choices. Sometimes the trustee’s job involves identifying a beneficiary’s harmful behavior and managing the distributions of trust funds in a way that does not condone or support such harmful behavior. The trustee, therefore, may face difficult decisions and must have the fortitude and compassion to act properly.

Lastly, consider the length of time the trust may exist and your confidence in appointed successor trustees to manage the trust funds in the future. Appointing a trustee and successor trustees is a task not to be taken lightly. For this reason, some people choose institutional trustees such as banks or trust companies; others choose accountants or estate planning attorneys. Trustees are entitled to a fair and reasonable fee. Institutional trustees publish rates for their charges. Cost is, therefore, a consideration, but so too is the proper management of the trust for the benefit of your loved ones–the beneficiaries of your trust. Many clients choose the chair of the Trust and Estates department at Halloran Sage as successor trustee or as the independent trustee. Through its continued existence since 1935, the Firm has proven its solid financial base; within this framework, the chair has developed a deep knowledge base of trust and tax laws, making him uniquely qualified for the role.