Including a trust in an estate plan has become a very popular option in recent years given the numerous and varied goals a trust can help accomplish. If you are considering the addition of a trust in your estate plan, one of the most important decisions you will need to make when you create your trust is who to appoint as your Trustee. A common mistake people make when they create a trust is to appoint someone close to them, such as a spouse or family member, as the Trustee without giving due consideration to whether that individual is truly the best person for the job. The Indianapolis trusts attorneys at Frank & Kraft explain why a professional Trustee is often the best option when choosing a Trustee for your trust.
Trustee Basics — What Does a Trustee Do?
The Settlor (creator) of a trust appoints the Trustee. In overall terms, the Trustee is responsible for managing the trust assets as well administering the trust using the trust terms created by the Settlor. Among the specific duties and responsibilities of a Trustee are the following:
- Managing and protecting trust assets
- Abiding by the trust terms unless they are impossible, illegal, or unconscionable
- Investing trust funds using the “Prudent Investor Standard”
- Monitoring trust investments
- Communicating with trust beneficiaries
- Resolving conflicts among beneficiaries
- Making discretionary decisions
- Distributing trust funds to beneficiaries
- Approving or denying distributions if given discretionary authority
- Keeping detailed trust records
- Preparing and paying trust taxes
Trust Is Necessary, but Not Sufficient When Appointing a Trustee
A common mistake made by Settlors is to appoint someone close to them (spouse, family member, or close friend) as the Trustee of a trust based solely on the fact that the Settlor trusts that individual. While trusting your Trustee is certainly necessary, it is not sufficient cause to choose someone to be your Trustee. In fact, failing to consider additional factors when choosing a Trustee dramatically increases the odds that you will appoint a Trustee who makes costly mistakes because of his/her general unsuitability for the position.
A Professional Trustee May Be the Solution
Appointing a professional Trustee is the best way to decrease the likelihood of costly mistakes when it comes administering the trust. There are several important reasons why a professional Trustee is often the better choice, including:
- Experience – successfully administering a trust requires a certain amount of legal and financial knowledge and experience. The Trustee of a trust should ideally be familiar with all the applicable state and federal laws that govern trust administration. In addition, a Trustee needs to have the financial wherewithal to invest the trust assets in a way that they will grow over the lifetime of the trust. Most of the time a professional Trustee will have more experience and knowledge about trust administration than a spouse/family member/friend has.
- Objectivity – a Trustee may have the authority to make discretionary disbursements if certain conditions are met. A professional Trustee is typically more likely to be objective when deciding if a request for a disbursement should be granted because the Trustee does not know the beneficiary on a personal level.
- Conflicts of Interest– the Trustee of a trust is often called upon to resolve conflicts among beneficiaries and is always required to try to prevent them from occurring in the first place. When the Trustee knows the beneficiaries on a personal level it can be must more difficult to avoid, or help resolve, conflicts. Worst still, the Trustee can easily run into a conflict of interest that could threaten the success of the trust.
- Liability — under certain circumstances, a Trustee can be held liable for the loss of assets or other negative outcomes during the administration of the trust. Not only would you not want someone close to you to be in such a position, but a professional Trustee is less likely to be in that position because he/she has the experience and the knowledge to avoid those circumstances.
- Willingness to Serve – Settlors often make the mistake of assuming that the person they appoint as Trustee is willing and able to serve. Unfortunately, that is not always the case, particularly if the trust is a testamentary trust because it means that the Settlor recently died. A spouse, family member, or friend may not want to act as your Trustee while grieving your recent death. With a professional Trustee, you do not have t worry about these concerns.
Contact Indianapolis Trusts Attorneys
For more information, please download our FREE estate planning worksheet. If you would like to discuss your choice of Trustee for your trust, contact the experienced trust attorneys at Frank & Kraft by calling (317) 684-1100 to schedule an appointment.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.
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