Naming the right successor trustee is crucial to ensure fulfillment of your wishes. But it can be a difficult choice. Our expert makes it easier with these tips.
By: Nicole Gopoian Wirick, JD, CFP®
Several people recently approached me regarding conversations about what happens to them when they're no longer able to make decisions for themselves. It's undeniable that these people love their children, but they're starting to question if that love translates into confidence regarding important decision making during their lifetime and beyond.
A well-coordinated and properly funded estate plan that is aligned with financial planning and legacy planning goals is critical. During the document drafting process, an important decision to make is who to name as a successor trustee. This is the person or entity that is charged with administering your trust when you are incapacitated or upon your death. A successor trustee has significant responsibilities, which can include locating and inventorying assets, paying bills, filing taxes, managing investments, conducting business, and making distributions aligned with your intentions.
A successor trustee doesn't have to do it all by themselves. They're generally able to hire professional partners such as attorneys, investment advisors and CPAs to help fulfill their obligations; however they cannot transfer their obligations and duties as successor trustee. They are responsible for supervising these parties to ensure they are acting in the best interest of the trust.
What are my options for a successor trustee?
A thoughtful planning session evaluates several options and involves a consultative conversation surrounding what might be best for you. Here are a few of the most common options.
Option One: Name an individual. This is often a family member or a very close friend you trust and who is well acquainted with your situation. The individual should be financially knowledgeable and responsible, with project management skills and enough free time to allocate to the task at hand.
Option Two: Name an organization. There are organizations (trust companies) that specialize in the professional administration of trusts. Although it's unlikely a trust company can know you as well as a family member or close friend, these are professionals who have dedicated their careers to managing trusts and have the expertise and credentialing necessary to do so effectively. These professionals are paid for their services from the trust assets.
Option Three: Name an individual and organization as Co-Trustees. It's possible to name a trust company and family member as co-trustees. Family members can still play an important role in decision making, but the professional trustee can do the heavy lifting in the hopes of maintaining family harmony.
Who might be a good fit for me?
Here are a few factors to consider when determining who might be a good fit as your successor trustee.
Confidence in decision making. Consider who you might want to make decisions on your behalf if you are unable to do so yourself. Someone very close to you likely has an intimate knowledge of your values and desires surrounding your own care and the care of those you love. With that said, this role is a big responsibility and is not to be taken lightly. Evaluate if you have a family member or close friend who you trust and has shown a history of sound decision-making over time, especially as it relates to financial or business-related matters. Does the individual have the ability to follow directions, make difficult decisions, and consult and manage experts appropriately?
Family harmony. When there are multiple children involved, naming one as a successor trustee can cause tension within the family unit. The child selected as successor trustee might have to make difficult decisions representing the best interest of their siblings, as outlined in the trust document, but those interests might not align with what the sibling wants in the present moment. This can make for very uncomfortable holiday dinners and could drive a wedge between children, especially if there is already tension. In the worst case scenarios, it can lead to costly litigation, depleting trust assets and severing a relationship for good.
Professional oversight and continuity. Life is messy and no one can control when disaster strikes. An individual successor trustee may have competing career and/or family obligations that could prevent them from addressing the needs of the trust. On the other hand, a trust company allows for continued administration of your trust with professional oversight. If one member of the team is sick, out of town or otherwise unavailable, there is usually a back up in place. Additionally, trust companies generally do not suffer premature deaths or disabilities like an individual trustee could, preventing gaps in administration or oversight.
Complexity and experience in unique assets. Review the assets owned by your trust and evaluate the complexity of those assets. Do you own multiple real estate holdings, a significant investment portfolio, business interests or unique assets such as art, collectibles, land or mineral rights? These assets will need to be inventoried, valued and managed appropriately based on their unique characteristics. Trust companies often have existing relationships with experts in such matters they are able to retain and leverage.
Evaluating who to name as successor trustee is a complex discussion that should be reviewed with your estate planning attorney and team of professional partners to ensure coordination with your financial planning goals.
About the Author: Nicole Gopoian Wirick, JD, CFP®
Nicole Gopoian Wirick, JD, CFP® founded Prosperity Wealth Strategies to help clients define and achieve prosperity. Recognizing an absence of women-focused networking and programming, she revived the Women & Finance Knowledge Circle as a subgroup within the FPA of Michigan. Nicole believes in giving back to her local community and has served on the board of directors for Variety, the Children's Charity Detroit chapter and has co-chaired the Alzheimer's Association Spring Soiree.
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