Shakespeare Blog: View from the Lake

Group 512

Selecting the Right Trustee

Written By: Ryan Rink, CFP®, EA, ChFC®, CLTC®

Letter and Pen for Trustee

You have taken the first step to meet with an attorney and start drafting an estate plan. One of the most important decisions you’ll have to make is who will be the trustee of your trust. The trustee plays a pivotal role in executing your wishes, managing assets and safeguarding your legacy. We’ll go over the responsibilities of a trustee, as well as other traits to consider when naming someone to serve in that role.

Responsibilities of a Trustee

Let’s first review the duties and responsibilities of a trustee. These may include, but are not limited to:

Asset/Investment Management: A trustee is responsible for managing the assets/investments held within the trust. This includes investing prudently, preserving and growing the assets and ensuring they are used for the beneficiaries’ benefit. In many cases, the trustee will work with a financial professional to assist with managing the funds. Depending on the trust’s terms, a trustee may have the authority to distribute assets to beneficiaries. They must follow the bylaws of the trust document and may exercise discretion when necessary.

Record-Keeping/Tax Filing: Trustees are required to maintain accurate records of all transactions and financial activities within the trust. This ensures transparency and accountability. They will also be required to handle tax matters related to the trust. This includes filing tax returns and managing tax liabilities in a way that is advantageous for the trust and its beneficiaries. Oftentimes they will work with a qualified tax professional to help with recordkeeping and filing tax returns.

Fiduciary Obligations: Trustees must adhere to all applicable laws and regulations, and act in the best interests of the beneficiaries at all times. They may also need to defend the trust’s interests in court if disputes arise. They are required to keep the beneficiaries reasonably informed about the administration of the trust and are expected to promptly respond to beneficiaries’ requests.

Choosing a Trustee

Now that you have a better understanding of the duties of a trustee, let’s review some factors to consider while you’re contemplating who to name in your estate plan.

Financial Acumen: This is one of the most common considerations for naming a trustee. Since the trustee will be required to manage the trust’s investments, they should possess a good understanding of financial matters. Keeping in mind that person will likely be working with a financial advisor, the trustee doesn’t need to be an expert in the stock market, but they should be somewhat financially savvy.

Trustworthiness: In addition to being good with finances, your trustee should be someone you trust implicitly. They will have access to your financial information and the power to make important decisions on your behalf. As we discussed above, trustees are bound by a fiduciary obligation to follow your trust agreement. That being said, there are going to be decisions that will require some discretion.  Someone who shares your values, virtues, faith, etc. is more likely to do this.

Availability: Consider whether your chosen trustee has the time and willingness to take on this role. Estate administration can be time-consuming, and your trustee should be prepared for the task at hand.  It’s a good idea to have a discussion with the person before naming them as trustee, so they are prepared and committed if/when something happens to you.

Impartiality: In most instances, there will be multiple beneficiaries of the trust. It’s crucial your trustee can act impartially and avoid favoritism. This can be even more challenging if the trustee is also one of the several beneficiaries.

Longevity: Give some thought as to how long the trustee will be needed. You might have a relative who would be a great fit as trustee, but they may not live long enough to fulfill the job if the trust is expected to last decades or longer.

Communication Skills: Your trustee should be able to communicate effectively with the beneficiaries and other involved professionals, keeping everyone informed as necessary.

As you can see, there are many considerations when naming a trustee! Many of our clients choose to name a close family member or friend. If there are potential conflicts, an independent, corporate trustee can be a great option as well. Either way, be sure to carefully assess potential trustees by considering the factors we discussed. By taking the time to choose the right trustee, you’re taking a significant step toward securing your legacy and ensuring your estate is handled with care and diligence.

Please reach out to your Shakespeare Financial Advisor at (262) 814-1600 with any specific questions regarding your estate plan.