Trustees: No Perfect Choices

Mom’s attorney asks her to select a trustee for the testamentary trust being created under Mom’s will. The trust is for the lifetime benefit of one child. The remainder will pass to the then surviving children or their families in equal shares. So who does mom trust to administer this trust fairly and devoted to its purpose?

Mom reviews her choices: the first son is opposed to a trust, claiming that the other siblings can be trusted to care for their sister, Diedre. The second son thinks that an unequal division is not fair. The third son supports mom’s choice but he is geographically distant from the family.

Who is the best choice? There are many issues to consider. The Trustee might be in conflict with the siblings who only have a remainder interest in the trust. They might demand that the trustee be parsimonious with the distribution of assets so that more remains when the trust terminates. If any of the siblings is selected, distribution choices will present a conflict of interest. Any expenditure for the income beneficiary means less for the sibling trustee who is a remainder beneficiary.

The Trustee must be able to manage difficult situations. In this case, the sister as income beneficiary may have demands upon the trust that challenge the trust purpose. For example, the trust’s stated purpose is to support Deidre. Deidre asks for the trust to pay for a vacation. The trustee must question the request. Is paying for a vacation an example of “support”? Questions about proper uses of the trust affect both income beneficiary and remainder beneficiaries. The potential for conflict is therefore great.

An additional consideration is the trustee’s skills. As a fiduciary the trustee must be a prudent administrator. Investment choices must reflect the purposes of the trust. Careful record keeping can avoid future conflicts. In this case, Mom should identify a person who has the financial skills to invest wisely and administer the trust well.

Many planning their estates are inclined to trust family with a fiduciary role, such as personal representative of the estate or trustee of a trust. Selecting from among siblings can create jealousies and tension. Perhaps none of the children wants the role or is suitable for the task. Many are concerned with cost, and imagine that their children don’t want or need to be paid for their trustee service. Mrs. M assumes that a corporate trustee, such as a bank or brokerage house, will charge exorbitant fees.

After pondering these questions, Mrs. M turns to her attorney and asks, “Do you ever serve as trustee of trusts?” Indeed, her attorney is willing and able to serve. He has no conflict of interest and he has experience as a fiduciary or trustee. Mrs. M directs the Trustee to complete drafting the will such that the attorney is named both Personal Representative of the estate, to probate the estate assets as the will directs, and as Trustee of the testamentary trust created for Diedre.

Many issues arise in the selection of a Trustee for a testamentary trust, especially when the trust favors one child over another. Therefore, the person planning their estate is tasked with some difficult choices. And the attorney drafting the documents must have the skill to address the many issues that can arise. Let’s look at those in the next installment.

Evan J. Krame