The biggest decision for anyone creating a revocable, living trust is the choice of Trustee. A Trustee acts as the manager of the Trust assets. They call all the shots, make all of the important decisions, and decide when and how the Trust assets will be distributed. The Trustee is in a very powerful position, and like all positions of power, there are those who abuse their power to the detriment of the Trust beneficiaries. This is why it is important to have a Trustee that you can trust.
Yet so many people create California Trusts without giving their selection of a Trustee much thought. In part, this is due to the limited choices most people feel they have in selecting a Trustee. Typically, the choice is made among the Settlor’s (a Settlor is the person creating a Trust) children. This may work a majority of times, but it can also lead to a great deal of tension, which then sets the ground-work for lawsuits being filed by Trust beneficiaries against the Trustee..
In my opinion, having seen the worst case scenario of Trusteeship time and again, the following are a few of the factors you should consider in selecting your Trustee:
- A Capable Trustee. First, and most importantly, you need a Trustee who can do the job. Being a Trustee is a thankless position. It is a position of power over assets, but it comes with a large number of duties and obligations imposed by California law and the Trust document. If a Trustee fails to perform properly, then he or she is personally liable for any damages caused.
Therefore, you need someone who has the ability to (1) manage financial assets, (2) follow directions as outlined in the Trust terms and the California Probate Code, and (3) manage the personalities of the beneficiaries. Each of these elements is vitally important to a well-managed Trust. Does that mean that your oldest child should be Trustee? Not necessarily. The more important question is who is capable of being a good Trustee.
2. An Independent Trustee. There are choices for a Trustee outside your immediate family. This includes corporate Trustees and so-called “private professional fiduciaries.”
Corporate Trustees are financial institutions that act as Trustees of Trusts. Some corporate Trustees require that the Trust have a minimum amount of assets before they will agree to act. The benefit of a corporate Trustee is that they are in the business of managing Trusts. They tend to be good at it. And they have a team of professionals to oversee the Trust administration. The downside is that they also tend to be the most expensive option—charging anywhere from .75% to 1.5% of the Trust assets on an annual basis. Additionally, Corporate Trustees are unlikely to have a personal relationship with the Trust beneficiaries, which means they will not know the individual needs of Trust beneficiaries like say a family member Trustee would.
“Private Professional Fiduciaries” are individuals who make their living acting as Trustee for people. In California, private professional fiduciaries must be licensed. Since they are in the business, they are good at managing Trusts and they tend to charge less than a corporate Trustee. And good private professional Trustees can help manage both the assets and the relationships between the beneficiaries.
3. A Well Informed Trustee. Whatever Trustee you choose, don’t forget to find out if that Trustee is well informed about handling Trust administrations. This goes even for family members. Why not talk to your child who you have named as successor Trustee to see whether (1) she even wants to act, (2) she knows what her duties are, and (3) she knows what your expectations are for management of the Trust estate. This rarely occurs, and yet it could be very beneficial to the Trust administration.
The choice of Trustee is yours, but put some thought into that choice and choose wisely.