This post is the third in a series of posts that recommend techniques for protecting one’s estate plan from the negligent and/or unscrupulous actions of trustees, family members and others, in order to ensure that the estate plan will be implemented as intended.
As described elsewhere on this website, it is generally advisable to hold one’s property in a revocable trust. (For a more detailed discussion of revocable living trusts in Utah, go to “Basic Estate Planning Information” on the home page of this website and see other blog posts on Utah revocable living trusts on this site.)
During your lifetime, you will typically be the trustee of your own revocable trust. Upon your death or incapacity, the person you name as successor trustee in the trust instrument will become the trustee. The successor trustee will hold legal title to the trust property and will control the trust property, subject to the fiduciary duties he or she owes to the trust beneficiaries. These fiduciary duties include providing the beneficiaries with a copy of the trust instrument, sharing a complete inventory of the trust assets with the beneficiaries, preparing an accounting of trust income and disbursements, and distributing the trust assets to the beneficiaries once all creditors and taxing authorities have been paid. Under no circumstances may a trustee use the trust property for his or her own purposes or otherwise engage in self-dealing.
Successor trustees of revocable trusts will typically be individual persons, such as family members, friends or professional advisors. Because institutional (i.e. corporate) trustees charge for their services, individuals are usually selected to serve as successor trustees in order to save money. (See the post on this site: “Should I Select a Corporate Trustee or an Individual Trustee?”)
Unfortunately, individual (i.e. non-institutional) trustees often do not properly perform their fiduciary responsibilities. In many cases, they don’t know what their duties are. But often, they just don’t care. They treat the trust assets as their own property and ignore the responsibilities they owe to all of the beneficiaries.
What can be done to protect against this all-too-common problem? The following are some suggestions:
Suggestion #1. Appoint Multiple Co-Trustees. When your attorney drafts your revocable trust, you might consider designating two, or perhaps three, successor co-trustees who can keep an eye on each other, and requiring that they must act unanimously. Having more than three trustees can be unwieldy, but two or three is usually manageable. Appointing multiple successor co-trustees can significantly reduce the danger that your successor trustee will undermine the estate plan you have put in place.
Suggestion #2. Appoint Qualified Trustees. Of course, even if you appoint multiple successor trustees, the possibility exists that one trustee will call the shots and the other trustee (or trustees) will take a back seat. That’s why it’s important to select qualified trustees. Not every trustee need be an experienced professional. But all trustees should be individuals who are smart, conscientious and reasonably sophisticated. If your children do not fit that description, consider appointing another family member or a trusted family advisor, such as your accountant or your lawyer.
Suggestion #3. Appoint an Independent Trustee. Appointing a co-trustee who is not a beneficiary, and who has no financial expectations or emotional involvement in the estate, can help safeguard against the problems that may come with having a family member or beneficiary serve as trustee.
Suggestion #4. Consider a Corporate Trustee. Most families do not want to hire banks or trust companies because they charge for their services. Nonetheless, for the reasons described above, in some circumstances an institutional trustee may be well worth the cost. Another option is to select a private professional trustee. Private professional trustees are individuals (often retired trust company officers) who are available to serve as fiduciaries at a lower cost than what institutional trustees charge. Selecting an institutional or private professional trustee can dramatically reduce the risk of mismanagement or malfeasance.
Of course, the principles described above apply to naming the executors under your will and the agents under your financial power of attorney, and to nominating your conservators, if they should ever be needed. Appointing multiple, qualified, independent executors, agents and conservators can be just as important as naming multiple, qualified independent trustees.
Rust Tippett is the author of this blog post.
Copyright 2014 UNLEPI, LLC, a Utah limited liability company. All Rights Reserved.
This blog post in no way creates an attorney-client relationship between the reader and either Robert S. (Rust) Tippett or Bennett Tueller Johnson & Deere, LLC. The reader should consult with his or her own estate planning attorney regarding his or her particular circumstances.
