You go to an estate planning attorney to set up your will or trust. That attorney asks you who you want to be in charge of your affairs when you’re gone. You say you want your husband or wife or one of your kids to serve as trustee. Makes perfectly good sense of the time. And the attorney just want to get the answer so he can prepare documents and get paid. But it does it make sense to be naming a family member to serve as trustee?
At the time of writing this blog, our law firm is involved in representing a number of trustees who are accused of mismanaging trust property. We see how this can strain marriages, and cause irreparable harm to family relationships.
The fact of the matter is that most people don’t know how to handle their own money. Most people live paycheck to paycheck and and if they get control over any amount of money, they will figure out how to miss manage it.
You may think the world of your husband or wife or oldest child. But that doesn’t mean that person has a clue about all of the responsibilities required to administer a trust. The final tax return needs to get paid. The trustee needs to identify what property belongs to the trust, what property is payable outside the trust. What about personal property? How does it get distributed? Should the house get fixed up before getting sold or just get sold as is? Any wrong decision can result in personal liability for the trustee. In other words, you could be putting your loved one in a position of inadvertently making a mistake and having to pay the big bucks as a result.
To make matters worse, is there any possibility of family dissension? Is there any possibility that the other beneficiaries of the trust will be jealous of the person you choose to be trustee?
How about if the surviving spouse is either in control of the trust or has psychological influence over the person who serves as trustee? There’s a good chance that the surviving spouse Will try to figure a way out of paying any money to a stepchild or nonblood relative. I have seen this time and time again.
So what’s the solution? The answer really starts by either properly laying the groundwork so the family is all on board and there are sufficient checks and balances so whoever is managing the trust will be absolutely certain to do it properly. Or… You hire a neutral third-party to serve as trustee.
For wealthier families who have family offices, the family office can serve as trustee. But this requires that the entire estate plan is properly set up so that the surviving spouse or some other family member cannot somehow take over control of the family office. This requires checks and balances and proper organization.
What can you do to prevent a problem? If you have a trust, get a second opinion about whether it will actually work when you were gone. Here is a short checklist of things your trust absolutely, definitely needs to have:
1. Every trust needs to have a trust protector. Sometimes this person is called an independent trustee. The purpose is to have a neutral third-party who can remove and replace irresponsible or criminal trustees, and make other changes as necessary to the trust so that your wishes are carried out.
2. Require regular accountings. At a very minimum, this needs to be annually. Waving the requirement of an accounting is essentially a license to steal without any way for someone to find out before it’s too late.
3. Make sure multiple family members have copies of all of your trust documents. Otherwise, the person in control of the trust document may not be happy with it and could destroy it without anyone ever finding out.
If you have any questions about hooter name as trustee or how to prevent family squabbles when you’re gone, contact us.