A colleague in the financial services industry recently shared a “situation” with me involving an estate plan gone really bad. This story illustrates why choosing the right trustee can make or break an estate plan. In a nutshell, a door to door salesman with shiny cufflinks had ascended on a geographic area of relatively high incomes in and peddled estate planning services door to door. I’m not sure if this person was presented as a lawyer, but the state bar rules prohibit solicitation in this manner for attorneys.
Aside from offering to prepare a revocable living trust at a ridiculously low rate, this individual counseled the families that they should NOT appoint a family member as trustee of the revocable living trust. Rather, he suggested that his handpicked trust offficer should take charge of all estate matters. One of these estate plans unfolded when dad recently became incapacitated and this “trustee” who was a stranger to the family showed up at my colleague’s office.
The drama that ensued is the subject of this week’s article…
Why Your Choice of Trustee is Critical to Your Estate Plan?
Whom To Appoint As Trustee of Your Living Trust is Critical to Your Entire Estate Plan, and Thus Should Be Carefully Considered.
Often, folks come into our office to do estate planning and have no idea what a Trustee does, much less any idea who to appoint in this role. Thus, in our example above, people who are without knowledge and looking for guidance can be easily mislead into believing that an “independent” or “corporate” Trustee is the ideal choice. In many cases, this is a far cry from the truth.
Certainly, there are situations where a corporate trustee makes sense, particularly for a large estate with a muli-generational estate plan. However, my recommendation even in these circumstances is that select family members could serve as a co-Trustee or, minimally, that the majority of beneficiaries be allowed to vote for the removal and replacement of the corporate trustee. Also, a corporate trustee should be a reputable wealth manager such as Bank of America or Merrill Lynch rather than a random John Doe Trust Corporation that could literally be here today and gone tomorrow.
The disadvantage of corporate trustees is of course the lack of personal relationship to the estate and also, frankly, high trustee fees. On the other hand, there may be situations where the personal relationship between the estate and the family members could be problematic if one or more is serving as trustee. So, there isn’t a cut and dry answer. However, one thing is certain and that is an individual that is not a trust officer from a recognized trust company is not in the best interest of any estate, especially if there is no limit on this individual’s authority.
For Small to Medium Size Estates it is Often Recommended to Have One or Two of the Family Members Serve as a Co-Trustee With Some Checks and Balances In Place.
Most people aren’t aware that two siblings may be appointed as “co-trustee”, and it can be decided whether each can act independently or whether they must act together. It is also possible, as I’ve mentioned in past articles concerning dynasty trusts, to have each child serve as trustee of his/her own sub-trust provided he/she remains qualified to do so. Similarly, parents may serve as trustee’s for the grandchildren’s shares, and there are many other options such as a trusted family friend or even a CPA or Financial professional who has earned the family’s trust. Yes, an estate attorney may also serve as trustee, but I would be wary of any attorney who suggests that he/she should serve as trustee because it can be overreaching and also a conflict of interest in my humble opinion. Better to have the attorney serve as a “trust protector”, if anything, as a way to protect the integrity of the trust and the trustee.
Getting back to my horror story for a second…the “trustee” mentioned above started bossing around the family and the financial adviser and even suggested that dad be moved up to Colorado for long term care because it is “cheaper”. Of course, the family had no connection to Colorado and were standing ready to provide care for dad at home. That case is now in the hands of the courts.
The “take away” is to be very careful when determining who is to serve in this important role, and be on the look out for slick door to door estate planning salesmen.