Once you have decided to create a trust, an important step will be to select a person or institution to serve as trustee. The trustee will hold and manage trust property for the benefit of the trust beneficiaries.
Clients often look to their loved ones to serve as trustee. This is often a good choice, but it is important that you have thoroughly considered your choice.
Choosing the right trustee is critical to ensuring that the trust will be administered efficiently and faithfully.
Of course at the most basic level, you should be able to trust your trustee! A trustee has many responsibilities and duties, including prudently investing trust funds, preparing an accounting of the trust's activities, filing tax returns, and taking steps to preserve and protect trust property. Above all, the trustee must act in the best interests of the beneficiaries. If you cannot trust your trustee to act faithfully and diligently, then he or she is not the right choice.
You may also consider selecting someone who understands the family dynamics and the needs of the beneficiaries. This is particularly important if a beneficiary has special needs or if you anticipate that there may be some family conflict.
In addition, since a trustee may be charged with making decisions that balance the needs of different family members, the trustee should be someone who can remain objective and impartial. The trustee's decisions may end up pleasing one beneficiary and upsetting another. For the sake of family harmony and to ensure that all beneficiaries are treated fairly (but not necessarily "equally"), it is often advisable to name a neutral third party as trustee or co-trustee.
In some cases, you may be looking for a trustee who has some level of financial sophistication. This may be the case if your trust has complex assets. You may be looking for someone with business acumen if the trust has interests in a business. On the other hand, the trustee can always seek the guidance of professional advisors, so a trustee can "hire" the skills that he or she may be lacking.
There may also be practical considerations with respect to your trustee choice. Does your trustee have the time to serve as trustee? Is he or she located far away? While a time-crunched trustee may delegate to professionals and technology may help reduce the hurdles of geographic distance, this may be effective only to a certain point. All other things being equal, a trustee in Boston is likely in a better position to manage a trust's real estate in the South End, than a trustee who resides in California.
Note that naming a trustee residing outside the U.S. requires careful consideration in order to avoid unintended tax consequences.
In addition, in some circumstances there may be individuals who are disqualified from serving as trustees in order to meet tax or asset protection objectives of the trust.
Appointing multiple trustees may allow each trustee to apply their unique strengths. For instance, a family-member trustee may have an intimate understanding of family dynamics and live locally to a special needs beneficiary but may lack the time or sophistication to manage the trust's finances. In that case, the family-member trustee could serve together with a professional trustee such as an attorney, accountant, or other trusted advisor.
It's your decision
Keep in mind that this is not an exhaustive list and the importance and relevance of each consideration varies based on your situation. In the end, there may not be one "right" answer for your unique circumstances.
Giving careful thought to your selection of trustees will allow you to rest easier knowing that your trust will be administered faithfully and diligently.