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Establishing a Revocable Living Trust for yourself and your family is worthwhile for many reasons I’ve written about previously, including: avoiding probate; maintaining privacy; controlling when and how young loved ones inherit assets; estate tax mitigation; etc. But perhaps the most compelling reason is to create a “financial succession” vehicle, designed and optimized to ensure that your assets are handled the way you want, both during your life and after you’re gone.
A Revocable Living Trust (“Trust”) has three “stakeholders”: 1) the Settlor [aka “grantor” or “trustor”] – the person who establishes the trust; 2) the Beneficiaries – the people who benefit from the trust; and 3) the Trustee – the person who manages the trust. As long as a Settlor is willing and able, he or she typically serves as his or her own Trustee (or if the Settlors are married, the spouses serve as Co-Trustees).
A much more difficult but important question is who should serve as Successor Trustee(s) and thus manage the Trust – the Settlor’s financial affairs – when the Settlor (or if married, when one or both Settlors) dies or becomes unwilling or unable to do so. This has many implications and should be thought through carefully and discussed in detail with your estate planning attorney.
First, it’s critical to step back and ask what the appropriate criteria are for choosing a Successor Trustee. There is no “one size fits all”. It depends on all relevant facts and circumstances, including the makeup of the Settlors’ family and their loved ones, assets, and objectives.
Certain criteria are intuitive. The starting place should always be trustworthiness. If trustworthy, is the person responsible and reasonably good at handling financial matters? Regardless of how trustworthy, a Successor Trustee is not going to be helpful if he or she isn’t the type who gets up in the morning and takes care of business. Geographic proximity is a factor, but tends to be less important now because of technology advances in managing assets from afar. Emotional character and personality should be assessed since one or more trust Beneficiaries (often related to the Successor Trustee) may try to manipulate the Successor Trustee. For example, a Beneficiary may make requests and try to persuade the Successor Trustee to exercise certain Trustee-authorized discretion in a manner that may not ultimately be in the best interest of that Beneficiary.
Much too frequently, a quick, “painless” decision is made by nominating one’s spouse, oldest child, or all children as Co-Trustees. Such haste may lead to problems, if not disaster. Choosing Co-Trustees, even when they consist of all of your children, is often problematic because of logistics and/or the required compatibility and cooperation involved in making Trust decisions (e.g., how, when or whether to sell or divide certain cherished assets). Family relationships can be devastated as a result of a Settlor not taking ample care in deciding who is truly best suited to be Successor Trustee.
Interestingly, the decision about who is to serve as Successor Trustee after the first spouse dies can have a more dramatic impact than who will serve when the surviving spouse dies. This is particularly so with blended families and/or with couples in which one or both spouses have significant separate property holdings. But issues can arise even for spouses whose entire estate consists of community property, such as those triggered by the remarriage of the surviving spouse.
Sometimes, neither relatives nor friends are the best candidates. Many financial institutions have reputable trust departments, with capable, seasoned trust officers who can potentially carry out a Settlor’s wishes most objectively, safely and effectively. Another alternative is to choose an experienced, “private fiduciary” – someone who is properly licensed and bonded, whose job entails serving as Successor Trustee for many different family trusts.
In this, as in many instances, your trusted professional advisor, such as your estate planning attorney, CPA and/or investment manager, can serve you best – not just by getting to an answer, but by knowing what questions to ask.
This article is intended to provide information of a general nature, and should not be relied upon as legal, tax, financial and/or business advice. Readers should obtain and rely upon specific advice only from their own qualified professional advisors. This communication is not intended or written to be used, for the purpose of: i) avoiding penalties under the Internal Revenue Code; or ii) promoting, marketing, or recommending to another party any matters addressed herein.
Mr. Silverman is an attorney with R. Silverman Law Group, 1855 Olympic Blvd., Suite 125, Walnut Creek, CA 94596; (925) 705-4474; rsilverman@rsilvermanlaw.com.
TRUST ADMINISTRATION: Need to find an experienced trustee administrator in Walnut Creek CA? Contact Robert Silverman at 925-705-4474 for legal advice on a Revocable Living Trust, “Summary” Estate Administration, Trust/Estate Beneficiary Representation and Will & Trust Disputes.