Estate plans that include trusts must name at least one successor trustee to serve in the event of the trustmaker’s incapacity and after their death. Since these trusts are designed to span multiple decades, it is crucial to choose the right succession of trustees.
Choosing the right successor trustee for your irrevocable trust that is intended to continue for years is critical to its longevity and ultimate success.
Initially, you may think that a family member, such as your spouse, a sibling, or an adult child, is the best person to serve as your successor trustee. You may think family members will better understand the varying needs of your beneficiaries and keep the costs of administering the trust down.
But in reality, family members will not be able to fulfill all of their fiduciary obligations without hiring legal, investment, and tax advisors. The expense of all these outside advisors will add up and can ultimately cost more than a corporate trustee, such as a bank or trust company. One advantage of a bank or trust company is that they can often meet all fiduciary obligations under one roof for one fee. In addition, a corporate trustee will act in an unbiased manner in making distributions and investments benefiting both the current and remainder beneficiaries. Also, a corporate trustee will not get sick or too busy to oversee the day-to-day administration of the trust.
Having the wrong trustee, without a reasonable means for removing and replacing them, may cause an expensive courthouse visit.
It is wise to have provisions into your trust allowing beneficiaries or an independent third party to remove and replace trustees without court intervention. Doing so is often an incentive for the trustee to work out any differences with the beneficiaries.
Selecting a successor trustee is one of the most important decisions you will make when creating an irrevocable trust or a dynasty trust. While family members may be your initial choice, you should give serious consideration to designating a corporate trustee, either alone or as a co-trustee with a family member or trusted advisor.
A corporate trustee will act as a neutral party to oversee discretionary distributions and investment strategies that benefit both current and remainder beneficiaries. To create flexibility, give specific beneficiaries (such as current income beneficiaries) or a trust protector the right to remove the corporate trustee and replace it with another corporate trustee.
If you have family members named as your successor trustees, please contact us so that we can discuss all of your trustee options.
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