October 1, 2019
The importance of trustee selection cannot be overstated when drafting a new estate plan in Wisconsin. Trusts require a trustee to manage and sells assets, divide property, pay bills, file taxes, distribute property to beneficiaries, and hire experts to assist when needed. The trustee plays a key role in ensuring that your estate is managed as you would want.
In Wisconsin, trusts are required to name a specific person or entity as trustee of the trust. That trustee will handle all of duties known as trust administration. The trustee that you select will normally perform the trustee duties outside of court, as most trusts are set up to avoid probate. Therefore, you need to know what factors make for a good trustee.
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Responsibilities of a Trustee
Since this article is primarily about selecting a trustee, we will give an overly simplistic answer to the question of what the role of the trustee is during the trust administration process.
To keep this answer simple, we’ll assume that the trustee’s primary role is to act as a successor trustee for a revocable trust that will be comprised of a few bank accounts, a house, and some personal property. In this scenario, upon the death of the trust creator, the trustee would likely be responsible for paying bills, selling the house, taking care of final tax returns, accounting for the assets and expenses to other trust beneficiaries, and then dividing up the remaining property as set forth in the trust.
In some cases, a beneficiary may require that their share be held in further trust. This tends to happen where there are competency or financial issues, or when the beneficiary is a minor. In these cases the trustee would be required to manage funds held in trust for a beneficiary. (In a previous article, we discussed the basics of trusts for young or minor children.)
While a trustee can be called upon to handle a myriad of tasks, in most cases, the role of the trustee is straight forward. In most cases, the trustee is a family member such as a spouse or child.
How Do you Decide Who Would Make a Good Trustee?
When we are drafting estate plans with trusts, especially revocable trusts, a key question is Who should be your trustee if you are unable to do so in the future or upon your death?
We often suggest selecting a child, spouse, sibling or another trusted family member. Where there are known family conflicts or non-marital children involved, we may recommend a corporate trustee or co-trustees, such as a bank.
As part of the estate planning process involving trusts, we always discuss successor trustees in case your first choice is deceased, unable or unwilling to act as a trustee.
Trustee Selection: Corporate Trustee or Person?
If the trust assets are difficult to manage, such as a farm, mineral rights, or equity in a small ongoing business, the trustee may need to be particularly well versed in these operations, sophisticated or have access to advisors or a corporate co-trustee. In addition, if there is a disabled child or the need for a long term trust or a special needs trust, then a personal trustee may not have the knowledge nor the ability to manage the trust long term, then a corporate trustee maybe the better choice.
This article focuses on selecting a person as your trustee, typically a child or other relative. However, for sophisticated trusts or assets, or where family members do not get along or have conflicts of interest that are not easily resolved, having a corporate trustee act for your trust is often the best solution. Although beyond the scope of this article, always remember, that there are reasons and times where a corporate trustee maybe the best solution.
Characteristics of a Good Trustee
The following are some characteristics to consider when selecting a person, as opposed to a corporation, as a trustee.
Expertise
A good trustee has the self-awareness and ability to know when something is beyond the trustee’s scope of competence. That trustee is willing to engage experts to assist when assets or issues call for expertise that the trustee does not possess. However, some potential trustees may have experience in trust administration, banking, stocks, or legal matters that can assist him or her in the trust administration process. These type of qualities and experience should be a factor in selecting your trustee.
Prudence
For most trusts, having a trustee with the ability to exercise prudence in selecting experts is critical. Even a simple trust with one house will likely need the trustee to hire a real estate agent to sell that house. Or that trustee will need to exercise good judgment when hiring an attorney to assist in the trust administration. The trustee should not be a know-it-all or unwilling to engage others for help when needed. Having the wisdom and good judgment of knowing when and now to hire experts are desirable traits.
Neutral Yet Firm and Strong
A trustee may have to make unpopular or difficult choices to follow your desires as set out in your trust. The trustee should possess a demeanor to make and defend these difficult decisions.
For example, let’s imagine that one child want to buy your house from the trust at a greatly reduced price and is pushing your trustee to sell the house to him or her at this price. Let’s also imagine that this price is strongly opposed by other children. Does your trustee possess the fortitude to do what is right, what is legal, and what you would have wanted? Will your trustee have the proper attitude and demeanor to calmly access the situation and make decisions without causing unneeded distress to others?
On the other hand, if your trust directs your trustee to allow that child to purchase your house at a discount, will your trustee follow through with that in a positive and supportive manner? Will your trustee follow through in a positive manner even if your trustee will receive less money than if the house were sold to another buyer? The ability to maintain a neutral and positive attitude can be an important character trait.
Location
Although it is better to have the right person rather than a local person, the ideal solution is a local trustee who is the right person. When deciding between two equally qualified trustees, location is a key consideration, with the understanding that the trustee’s location can change. Moreover, the location of the trust could change if you move prior to passing on. While a local trustee may find it easy to perform the duties, having the right person as trustee regardless of location is the best approach.
Impartiality
Your trustee, especially a child who is a trustee, could have a financial interest in your trust. Can your trustee act independently and impartially? Will your trustee not favor themself over the other beneficiaries? Will the trustee make the right decisions for what is right for all of the beneficiaries? If your trustee does not possess the ability to do what is fair and impartial, then he or she is probably not right for the job.
Length of Time
The expected life-span of the trust itself is factor when considering the right trustee. The age of the trustee becomes a factor with on-going trusts. For example, a trust for a young grandchild or a disabled child will likely need a trustee for decades. It is unwise to appoint a trustee who is unlikely to be able to function adequately for an extended period. Therefore, age is a factor in allowing the trust to be competently managed over an extend period of time.
Ability to Follow Directives
Most trustees are not experienced in trust administration. When selecting a trustee, it is important to consider the capacity and willingness of a potential trustee to follow directives. Will your trustee sit with a lawyer to read through and understand the trust? Is your trustee going to adhere to the guidance of that lawyer? Will that trustee follow your desires as set forth in your trust? Does your trustee like to do things his or her way and not follow the rules?
A trustee should conscientiously follow the rules and directives in your trust. Whatever your decisions, no matter how unpopular, the trustee should follow your wishes without causing undue distress to others.
Organizational Skills
The ability to complete tasks and keep good records are important skills for a trustee. The attorney and accountant will need to prepare final taxes and accountings. They will need good records of what was sold, what income came into the trust and what expenses were paid. Therefore, your trustee should be able to organize documents and keep decent records. A child who routinely files taxes late, loses important paperwork, or pays bills late, probably lacks the organizational skills needed to act as a trustee.
Calm, Steady, and Plays Nicely with Others
A trustee interacts with family members and other beneficiaries. As such, the right trustee should be able to get along with others, and make calm, well-reasoned decisions. Your trustee should be a peacekeeper – not the type that likes to stir-up issues. Your trustee should have the ability to stay calm when others are emotional and upset. A steady calming trustee can help to smooth over family disagreements, while still being a firm decision maker.
Successor Trustees
As estate planning lawyers, we recommend naming a second successor trustee or a co-trustee. This is in addition to naming a first successor trustee, who will normally take over after the trust creator’s death. In short, we want your trust to be covered if your first choice trustee is unable, unwilling or ceases to act as trustee.
Co-Trustee Option and Appointment of Successor Trustee Options
In some cases, we recommend selecting co-trustees. This arrangement can require that co-trustee work together in lock-step to make decisions. Alternatively, the arrangement could allow those co-trustees to work independently, dividing up duties.
The decision of whether or not to name co-trustees is beyond the scope of this article, but it is something that we discuss during the estate planning process. However, it is important that your co-trustees get along well and cooperate with each other. Otherwise, co-trustees can make the trust administration process more difficult.
In addition, we often include provisions to allow your trustee to appoint a replacement trustee on a temporary basis. This provision gives the primary trustee options when dealing with minor personal health issues or when facing a hostile beneficiary or sibling.
Finally, we often include the ability for your trustees, as a trust protector, to appoint a successor trustee if all of your named trustees fail to act.
We Can Help with Trustee Selection
As an experienced estate planning law firm, we have worked with hundreds of trustees. When you selecting your a trustee for your estate plan, we welcome the opportunity to assist you with that process. Please contact us to arrange a time to speak about your needs.