Selecting a Trustee: A Spectrum of Possible Arrangements
There are many factors that bear on the choice of trustee. The purpose of the trust; its duration; the ages, health, and circumstances of the beneficiaries; and the types of assets to be administered all have bearing on the choice. You could name Uncle Joe as trustee, but business and real estate assets may be better handled by persons familiar with those particular categories of assets, while matters concerning distributions to young children might be better decided by the persons who also act as the children’s guardians – not Uncle Joe.
Trustees may be chosen for their professional backgrounds because they routinely work in the field of trust and estate administration, or because they are uniquely qualified to handle the settlement of specific types of trust assets, such as a business or professional practice. Thus, an architect might be a good choice as trustee to run, sell, or dissolve an architectural practice, while a physician may be better suited to run, sell, or dissolve a medical practice.
Family members and professionals can also work in cooperation. Family members can be co-trustees with professionals and institutions, or they can be given specific roles. For example, the family member could be the distribution trustee who makes decisions for the use of funds to support the health, education, and support of beneficiaries, while the professional trustees are given the role of guiding the investments and filing the taxes for the trust.
If you think of the options on a spectrum with the lower end of the spectrum being a sole trustee who is an untrained family member, the middle being multiple trustees with professional involvement, and the other end of the spectrum being the storied institution with tremendous resources for professional administration of the trust, it may help you in determining the types of arrangements that are suitable for your situation.
Who Is Most Qualified as Your Trustee?
Beginning with the grantor followed by sole family members as trustees, the list below describes what might be considered a progression of trustee qualifications, sophistication and likely annual cost. These options range from serving as your own trustee, to family and professionals working together, to professionals alone.
Grantor(s) as Trustee
Grantor’s spouse as Trustee
Sole family member or friend acting as trustee, untrained, with common intelligence and skill
Two or more family members or friends as trustees acting by majority
Two or more family member or friends as trustees acting unanimously
Family member(s) instructed in the trust to regularly seek the advice of attorneys and accountants familiar with trust law and taxation
Family member(s) teamed up with professional co-trustees like an accountant or CPA with all decisions being made unanimously as a unit
Temporary Independent or professional trustee for special circumstances requiring independent judgment, such as discretionary distributions to the trustee him or herself, to related beneficiaries, or for making certain tax elections
Administrative Trustee – a Professional trustee such as CPA or attorney trained in trust law and taxation for the short-term administration of the estate following the death of the grantors of the trust. This role is similar to that of executor under a will.*
Contingent, permanent professional trustees, when family member trustees are no longer available
Permanent professional trustees such as CPAs or attorneys trained in trust law and taxation acting as permanent co-trustees with family, from the beginning, serving with the grantors as co-trustees
Professional trustees acting as sole permanent trustees at the point where the Grantors are no longer able to serve
Professional trustees acting as permanent sole trustees from the beginning as sole trustees rather than only when family are not available
A professional advisor such as a lawyer or CPA acting as co-trustee with an institution such as a local trust company or national institution.
A banking institution with a solid trust department with skill in handling all manner of assets both real and personal in place of the professional trustee in the foregoing examples
Specialized trustees for handling the settling of unique assets held in trust such as artwork, business or professional interests, or as trustee for a certain family member, such as one with a disability, and for charitable purposes
Any combination of the foregoing coming into a role as trustee at the point the grantors of the trust can no longer serve.
Read Part 1 of Borchers Trust Law’s Spectrum Series here.
