One of the most important decisions you will make regarding your trust is who will oversee the trust's management when you no longer can (also known as your successor trustee).
A trustee's work may be time-consuming, complicated, and risk liability, which is why many people who create a trust consider naming a professional fiduciary as their trustee. Remember that if you ask your estate planning attorney to serve as your successor trustee, you should ask for a separate engagement letter from the one you sign engaging them to create your estate plan.
When looking to hire a professional to serve as your trustee, keep an eye out for the following red flags.
Red Flag #1: They don't have adequate resources.
A professional's agreement to act as your trustee doesn't mean they have the resources to administer your trust properly. Be proactive about asking questions. Trust administration is important; you should feel sure the person you appoint as your trustee is well-equipped to fulfill the role. The following are some of the important functions you should ask the professional about:
Bookkeeping. The professional you hire should have a good system for trust accounting. Trust funds must be held in a separate account that is not commingled with their business's funds, and there must be a system in place to keep separate records of income and principal, disbursements from the account, receipts, capital transactions, and more. The professional trustee has a duty to provide information to the trust's beneficiaries. Current income or principal beneficiaries are entitled to a detailed accounting to understand the trust's transactions, accounts, and property. Your trust's funds must only be used for your matters: the professional must not use one client's funds for another client's benefit or cover expenses for another client.
Additional recordkeeping. The professional must be equipped to handle many other recordkeeping responsibilities, including preparing tax returns (even if they hire someone else), handling trust-related correspondence, and keeping records of their steps and actions. This includes information provided as a justification for a distribution request.
Adequate staff. A professional trustee may administer multiple trusts at the same time. So their business must have enough trained and experienced staff members knowledgeable about trust administration to perform the necessary tasks.
Red Flag #2: They aren't easily accessible.
Does the trustee you're considering have enough time in their schedule to handle the responsibilities required by the trust? A trustee needs to be responsive and accessible, especially when the terms of the trust provide for thoughtfully evaluated distributions, such as for a beneficiary's health, education, maintenance, and support. The beneficiary and trustee will need to communicate often if distributions are likely to be made regularly. For example, suppose a trust beneficiary requests a distribution to help pay for a medical procedure. The trustee should be able to respond in a timely way without requiring multiple phone messages or repeated requests.
Administering a trust can be time-consuming, especially if a trust has a complex distribution scheme. For example, suppose a special needs trust is involved. In that case, significant attention and knowledge of the beneficiary's needs will be necessary to ensure that distributions are properly made so that governmental benefits are not lost due to mistakes in the trust administration. In addition, if a trust is designed to care for a beneficiary who has an addiction and distributions are to be made to support recovery, the trustee must become familiar with the situation and be willing to spend the time needed to administer the trust in the beneficiary's best interests. If trust administration is only a small part of the trustee's business, they may not have the time needed to handle the tasks required, including communicating with beneficiaries and other relevant parties.
Red Flag #3: They don't have a succession plan.
If the trust will continue for many years, hiring someone who will retire soon may not be prudent, especially if your trust beneficiaries are minors. Regardless of the trustee's age, it is essential to ask if the trustee has a succession plan in place, because no one can work forever. Although the terms of your trust should address who will act as a successor trustee if the trustee you initially appoint is unable to continue in the role, if your trust gives the trustee the power to designate a successor, you should ask who will step into their shoes if something happens to them.
Red Flag #4: They aren't willing to work with other advocates for your beneficiaries.
In some situations, for example, if a beneficiary is a minor or has special needs, the trustee must cooperate and communicate with other caregivers. In the case of a special needs trust, for example, the beneficiary may be incapable of safeguarding their own interests. In such a situation, a caregiver or advocate must effectively communicate the beneficiary's needs to the trustee. The trustee must have the time and willingness to maintain regular contact with those advocates.
Once you choose a professional trustee you feel comfortable with, notify them that they have been named as trustee, even if they will not have to act until you are no longer able or have passed away. Your decision to designate a particular professional as trustee does not mean they must accept that position. Because being a trustee is an important role with many responsibilities and demands, notifying your choice now will avoid problems later if the professional you have chosen does not want the job, particularly if you are no longer around to appoint someone else. If your initial choice declines after you notify them, you can appoint another trustee you have vetted rather than forcing your beneficiaries to go to court to resolve the matter, which may be expensive and time-consuming.
We understand how important it is to choose the right trustee. If you need help choosing a trustee or would like us to meet with your chosen trustee to explain their role in your trust, please give us a call. Call Santaella Legal Group, serving all of California, at (925) 831-4840.