Choosing An Individual Trustee for Your Estate Plan

April 5, 2016

The task of selecting an appropriate individual trustee to manage your estate after you become incapacitated or pass away often makes or brakes how your assets are managed when you can no longer do so. Get the choice right – and your final wishes are carried out to a “t”. Get it wrong and the management of your estate can be cumbersome and expensive.

As estate planning attorneys, the lawyers at Wokwicz Law Offices have decades of experience helping our clients make the right choice when selecting an individual trustee for their estate plan.

What is a Trustee?

The trustee is the person or corporation that will oversee and administer your trust in the event that you are unable to do so or upon death. The trustee is a “fiduciary” who is given great authority over your assets, but is to act in a manner consistent with your trust document. The trustee will be the person or corporation that makes sure that your wishes and desires as set forth in your trust are carried out when you are no longer able or are deceased. In most of our trust estate plans, children or other family members will act as successor trustees.

Estate Planning and Your Trustee Choice

When a revocable trust plan is appropriate, one issue we discuss at length is who to choose for your trustee and personal representative (the term “personal representative” is the legal term used for the “executor” of a Last Will and Testament in Wisconsin). This article will focus on the choice of your trustee for an estate plan involving a trust, especially where a family member or non-corporate trustee is being selected. However, many of the same principals and thought processes also apply to the choice of a personal representative under a Last WillA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. and Testament.

On most revocable trust plans, you will likely choose to be your own trustee for as long as you are alive and able. However, the choice of your successor trustee upon your inability to act or death is an important decision, as is the naming of successor trustees in case your first choice is unable, unwilling or ceases to act as the trustee. In some cases, it is advisable to select “co-trustees” where more than one person acts in tandem to carry out the requirements of your trust.

For this article, we will focus mostly on individuals acting as your trustee, instead of a corporate trustee. (We will deal with corporate trustees in a subsequent blog post.)

Primary Considerations when Choosing a Trustee

Following are a few of the considerations we consider when choosing a trustee to oversee your trust:

• financial experience and expertise,
• common sense and a sense of responsibility,
• the ability to keep accurate records,
• financial security,
• sensitivity and temperament,
• willingness and availability to act,
• age and health, and
• fees.

Financial Experience and Expertise

Your trustee does not have to be a stock broker or accountant. Your trustee does not need to be a financial or real estate expert. However, your trustee should be comfortable working with your attorney, financial advisor and/or realtor. He or she should be able to discuss financial and tax decisions in an intelligent manner and have some experience with investing and working with advisors or realtors.

As attorneys, we can give legal advice to your trustee, but some of the actual execution of our advice must be made by the trustee. The trustee’s job may include selling stock or mutual funds, or opening a trust account at a bank, or selecting a realtor to sell the house and subsequent follow through on the sale. Your trustee should be comfortable making these type of decisions and discussing these type of decisions with us and with the other advisors involved with your estate.

Common Sense and Sense of Responsibility

Your trustee should be a responsible person who acts carefully and thoughtfully with respect to his or her own financial and life decisions. Your trustee should have good judgment and sound reasoning skills. Your trustee will be held to a “prudent person” standard and will be expected to act in a manner that uses the same degree of care as a trustee that an ordinary person would use in dealing with his or her own property.

Some questions that you may want to ask yourself about the person you are considering, is how he or she makes his or her own financial decisions. Is he a good saver or does he overspend? Has she over-borrowed or made poor (and significant) life or financial decisions? A good indication of how they will handle the responsibility of acting as your trustee, is how he or she acts towards his or her own financial affairs.

Accurate Record Keeping

The trustee will be expected to retain documents, financial records, and keep track of asset sales, expenses and income. He will need to keep a check book ledger and to provide this information to us so that we can prepare accounting as necessary and tax returns for the trust. Your trustee does not need to be an accountant, but she needs to be able to keep accurate records and have some organizational ability. It can be costly and difficult to reconstruct what your trustee did with funds and what bills were paid or not paid.

A question to ask yourself is does your trustee keep accurate financial records for herself or is she constantly trying to locate missing documents or statements? The ability to keep accurate records is an important selection criteria for your trustee.

Financial Security

Your trustee will have access to your funds, bank accounts, sale proceeds from real estate and other assets. Your funds will be entrusted to your trustee to be applied to your expenses, taxes, bills, and ultimately to your beneficiaries. A trustee who is not financially secure could put your assets at risk from the intended purpose. The financial security of your trustee goes beyond how much money they have, to a sense of how do they treat their financial lives and are they susceptible to misapplying your funds. A well off individual, who puts his or her financial considerations above others, may also not be a great choice as your trustee.

A question to consider is he financially secure so that he or she isn’t in need of funds that could be misapplied to his or her personal financial difficulties? Does your trustee spend her funds in a responsible manner? Is she a saver or someone who spends money as fast or faster then she can get her hands on it? Is the person you are considering as trustee in debt to you or has he taken loans out from you that were never repaid?

Sensitivity and Temperament

Your trustee should be able to communicate and get along with other family members and beneficiaries. He should not show favoritism towards any one beneficiary and should follow your desires and requirements set forth in the trust without question. She should not be alienated from family members and should be able to treat everyone fairly. When conflicts arise, your trustee should be able to remain rational and reserved and be able to communicate and discuss conflicts with others without inflaming the situation.

A good question to ask yourself and observe, is how does your trustee deal with family squabbles or conflicts? Is he reasonable and calm or does he disappear or inflame the situation? A trustee who is sensitive to the needs of others, flexible during discussions, and not one to take sides or show favoritism can be positive criterion for selection. A trustee who does not become overly emotional and make a difficult situation worse, is also an important emotional trait for your trustee to possess.

Willingness and Time to Act

A person with the best abilities and skills will likely turn out to be a poor trustee choice, if he or she does not want to act, refuses his or her appointment as trustee, or doesn’t have time to act. Often individuals who are not family members will have little interest in getting involved in another families’ affairs and will not devote the necessary time to fulfill the trustee’s duties. A trustee who is not interested in acting, but chooses to act anyway, may result in a slow trust administration process resulting in unnecessary delays and expenses.

The best trustee in the world won’t work out if he is unwilling to act or wants to act but has little-to-no time to serve as trustee. A family member who is an accountant or attorney, or a corporate executive may seem like the logical trustee choice. And she maybe the best choice. However, a question to ask yourself is does she have the time and willingness to make the time to act as your trustee? Does he have little time now for family involvement or involvement with you due to children or work obligations? The most willing trustee may not work out if he or she does not have time to fulfill the trustee’s duties.

Age and Health

Your trustee should be expected to be around after you are no longer able to take care of your affairs and following your death. A person who is already in bad health may not be a good choice as trustee, for obvious reasons. However, you will normally name successor trustees in the event that your initial trustee choice is unable or unwilling to act as trustee. Naming co-trustees or one or more successors is a normal practice that we will discuss during our estate planning meetings. We are also now able to appoint “trust protectors” in Wisconsin, so that your trustee or another person can replace a trustee who is not performing or name a successor trustee if necessary.

Fees

Your trustee is normally entitled to a customary and reasonable fee for carrying out your desires as the trustee. Your trustee will be performing all sorts of duties and taking his personal time to make sure the trust is followed according to your desires. He could be involved in the sale of your real estate, meeting with an attorney or accountant and keeping accurate records and paying bills. Your trustee will likely be devoting more time than any other beneficiary to your affairs, so it is only appropriate that he be compensated for this work. This is normally true whether you name an individual or a corporate trustee.

A typical fee for an individual for the initial year of work will be between one and two percent of the trust estate assets. Normally, a trust provision will be included allowing for customary and reasonable trustee fees. Often family members will work at a discounted fee or no fee at all. However, we normally suggest that the trust provide for reasonable compensation for your trustee.

Help with Choosing an Individual Trustee

The choice of your trustee is one of the more important decisions during the estate planning process that will need to be made, along with a co-trustee or successor trustees. At Wokwicz Law Offices, our experience and expertise enables us to assist you in making a wise and solid trustee choice. Contact us today on 262-658-2181 or info@wokwicz.com to discuss choosing the right individual trustee for your estate plan.