Carolyn Moller Duncan PC
4 Important Considerations When Naming a Trustee
A trust is a very common vehicle for transferring assets upon death. There are of course, many different types of trusts including living trusts and tax-saving living trusts. Regardless of the type of trust that is used, however, there must be a trustee to manage and handle the affairs of the trust. Here are four important things to consider when naming a trustee.
1) What does a trustee do? At a bare minimum, the trustee is responsible for maintaining the assets. This means that they must ensure that the assets remain intact (i.e. they shouldn’t sell them) and valuable. If there is a house in a trust, the trustee is responsible for maintaining the home including making necessary repairs, paying taxes and insurance, and other required work. The trustee’s job can be multi-generational, meaning they can manage the trust from the original grantor all the way to the original grantor’s great-grandkids.
2) What powers will you give the trustee? Given the ever-changing nature of the economy, trustees are usually given wide latitude to take necessary actions, particularly with respect to investments and their management. Many laws already limit the investment actions of a trustee, thus covering this potential hazard. As always, the more explicit the instructions and requirements of the trustee are in the trust agreement, the more likely it is that the trustee will be successful—or can be held accountable in the event of mismanagement.
3) The trustee does not have to be a family member. When choosing a third party to be in charge of important decisions, many people default to a family member. This makes a lot of sense since a family member is usually very trusted, knows the person involved, and can make decisions that are in their best interest. A family member may not always be the best choice, however, due to lack of expertise and the moderate potential for conflict.
The good news is that there are alternatives, such as an attorney. Attorneys can be excellent trustees because they will be familiar with the requisite laws surrounding trust administration, including the required tax filings, and above all, they are impartial. Their sole purpose is to maximize the trust for the benefit of the beneficiary.
Another option is to have a bank be the trustee. In cases where there are significant investment assets in the trust, a bank may be a wise choice since, again, it is impartial and neutral. Also, the bank will be able to manage the assets with significant expertise. Banks also usually do not die or go away, which is good news for trusts that are intended to last over generations. Banks, however, can be impersonal and err on the conservative side, eschewing risky investments over long-term gains.
A third hybrid option that is becoming more popular, are arrangements where a family member is the trustee but a bank is hired as the independent investment advisor. The trust benefits from the investment expertise of the bank while the trust administration stays in the family.
4) Have knowledgeable counsel draft the trust agreement. A trust agreement is extremely fact-specific which means that no two trusts are going to be alike. While you might find a trust agreement online and think it’s perfect, chances are it will not work for your situation. This is where hiring a legal professional who understands trust agreements and the laws that govern them is vital.
Carolyn Duncan has the experience and knowledge of trusts to assist you in planning your Colorado trust. Contact our firm today to get started!