Determining who will serve as trustee of your Revocable Living Trust when you cannot act is an important decision that should be carefully considered. Many of my clients have established revocable living trusts for various reasons. Some choose to use a trust because there are significant assets in their estate, while others want to ensure their beneficiaries inheritance is structured in a particular manner. Still others are concerned about probate and use the revocable living trust for privacy.
When a trust is created, the grantor generally serves as the trustee, but you must also name a successor trustee to act in the event of your incapacity or death. The trustee has a fiduciary duty to carry out the terms of the trust. However, the trustee’s responsibilities extend further. The trustee has a duty to keep records. This includes an accounting of the trust assets, receipts, disbursements, and liabilities. Because some beneficiaries may be entitled to income only or principal only, the trustee must ensure principal and income is properly allocated and tracked. Beneficiaries must be kept reasonably informed on matters regarding the trust administration, and the trustee has a duty to notify the beneficiaries when a revocable trust becomes irrevocable or when there is a change of trustees; additionally, the trust instrument may impose additional notice requirements. The trustee also has a duty to ensure the tax returns are prepared and filed, and that any tax payments are made in a timely manner.
In administering the trust, the trustee has a duty to act in the best interests of the beneficiaries. In doing so, the trustee must consider both the current beneficiaries and the future beneficiaries, such as minors or unborn children. This means that the trustee needs to ensure the assets are actively managed and properly diversified to meet the current and future income needs of the beneficiaries. When there are multiple beneficiaries, the trustee cannot favor one over the other, unless the trust document authorizes such discretion.
Though many people name adult children or other family members to serve as successor trustee, a corporate trustee is often appropriate. A corporate trustee can provide expertise with respect to investment management. They also provide experience, objectivity, and professional resources. For example, a corporate trustee may be better able to handle the recordkeeping and notice requirements. Because of the time and effort involved with the administration of a trust, an individual family member may feel burdened by the task. A corporate trustee can relieve this stress.
The downside of using a corporate trustee is that they may be less familiar with the beneficiaries’ personalities and needs. Having a family member or family friend serve as a co-trustee with the corporate trustee may be a solution. In this case, the individual could provide guidance to the corporate trustee regarding the beneficiaries’ needs.
Your estate planning attorney can discuss your options in more detail, and can provide referrals if you are considering naming a corporate trustee in your documents.
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