Selecting a trustee for your revocable living trust is a very important decision. But who should you choose? In most cases, the initial trustee is the person or persons who created the trust. So, what we are really talking about is the successor trustee. The successor trustee is responsible for the trust after the initial trustee dies, resigns or can no longer serve because of incapacity or another issue. Typically, successor trustees see to it that beneficiaries receive their inheritance, that all necessary tax returns are filed and that the trust is settled and closed properly.
Two main options exist for the successor trustee. First, there is an institutional trustee. This is a bank or trust company. The main advantage of an institutional trustee is professionalism. Banks and trust companies have extensive experience in managing trusts. Further, institutional trustees have knowledge of state laws governing trusts. On the other hand, institutional trustees are expensive. In fact, some banks and trust companies will not agree to serve as a trustee unless the trust is sizable, usually valued in the millions of dollars. What’s more, institutional trustees often lack an awareness of the family dynamics. The second option for a successor trustee is a family member. Family member trustees, while they do sometimes claim a fee, almost always cost less than institutional trustees. In addition, family member trustees tend to have a good understanding about the personalities of, and potential conflicts between, the beneficiaries — which can facilitate a smoother trust administration and distribution. Unfortunately, unlike institutional trustees who are unaffiliated, family member trustees are prone to accusations of bias, favoritism and self-dealing, something that could possibly result in litigation.
Picking the wrong trustee can have serious consequences. Therefore, trustee selection is something that should be discussed thoroughly during the estate planning process.