How should I choose my trustee or executor?
By Laura W. Patton, Attorney at Law, Planning Your Legacy
During your lifetime, you will be the trustee (manager) of your own living trust. The question is how to choose someone to be the next trustee after you are gone. This person will also serve as the executor of your will, if your estate needs probate.
The first rule of thumb is this: Don’t nominate two or more family members to work together after your death (co-trustees). The risk of conflicts, family disharmony, wasting assets, and involving the Court to resolve disputes is many times higher when multiple people must sign every document and agree on every small step of the administration. There are so many decisions that can put a stop to the process of settling your estate, such as when to sell your securities, what CPA to hire, whether to fix up your home for sale, or which real estate agent to use to sell your home. When there is no agreement, the task does not get done until someone forces the issue by going to court, costing everyone time and money. There may be a lingering power struggle between family members that plays out during the trust administration, resulting in siblings who no longer speak to each other after your death. That said, the trustee must follow the language of your trust, be prudent and reasonable with your finances, and must answer to your beneficiaries when making decisions. So naming only one person at a time is always best.
The second rule of thumb is this: Use a professional trustee. It may be surprising, but putting your adult child in charge of your trust will usually end up costing them more money than using a professional trustee. The reason is that the professional trustee will not need to take time away from work and family to deal with the administration. The tasks include collecting all your accounts into one, paying final bills, clearing your home, getting appraisals, dealing with your retirement accounts, handling your insurance claims, selling your residence, filing tax returns, and preparing a formal accounting of all their work for the other beneficiaries.
A professional trustee does these tasks on a daily basis as part of his or her job, and can do them much more efficiently than a family member who is unfamiliar with trust administration. Also, while professionals are entitled to the exact same compensation as a family trustee, the family trustee will generally hire an attorney to guide the administration process, assist with the formal accounting, and minimize liability. So the advantages of a professional are many: lower attorney fees, no conflicts of interest, less chance of litigation, more efficient management, and quicker ultimate distribution of the assets. Most family beneficiaries are immensely relieved to learn they will not have the burden of being a trustee or executor.
How does one find a professional trustee? Your estate planning attorney can help you choose a licensed fiduciary or a corporate trustee. The state of California has a licensing board called the Professional Fiduciaries Bureau, which enforces the statutory requirements that licensed fiduciaries must follow, including having proper insurance, continuing education, and reporting rules. Corporate trustees are generally banking or brokerage institutions and can be effective trustees after a death. If you want to plan for a time of disability, you will need a trustee willing to manage your money and pay your bills for you while you are still living but incapacitated. Most bank trustees will not serve as agents under a Power of Attorney, so the trend for the last several years has been in favor of individual licensed fiduciaries instead of corporate trustees.
For more information about estate planning and trust administration in the East Bay area, visit Laura W. Patton’s website at www.planningyourlegacy.net.