Like many people, you may elect to incorporate a trust into your estate plan for any of a wide variety of reasons. One reason trusts are so popular is the numerous and diverse estate planning goals that can be furthered using a trust. No matter what kind of trust you create, nor what estate planning goal you hope to achieve using the trust, one of the most important steps during the creation of the trust is choosing a Trustee. Because it is your trust, the ultimate decision is yours to make; however, given the important role a Trustee plays in the success of a trust, care should be taken when choosing your Trustee. To help you, the trust administration attorneys at Nash, Nash, Bean & Ford, LLP offer the top five questions to ask when choosing a Trustee.
A trust is a separate legal entity that owns and holds property for the benefit of one or more beneficiaries. All trusts require the following five elements for creation:
- Settlor – the person who creates the trust. A Settlor may also be referred to as the Grantor or Trustor of the trust.
- Trustee – an individual or entity that administers the trust terms as well as manages and invests the trust assets.
- Beneficiary – a beneficiary is a person, entity, or even family pet that receives the benefit of the trust assets.
- Terms – created by the Settlor and may be anything that is not illegal or unconscionable.
- Funding – almost anything of value can be used to a fund a trust, including cash, securities, and real property.
All trusts fall into one of two broad categories – testamentary or living trusts. A testamentary trust is one that is typically activated by a provision in the Settlor’s Last Will and Testament after the death of the Settlor. A living trust, as the name implies, activates during the lifetime of the Settlor once all formalities of creation are complete, including the appointment of a Trustee. Living trusts can be further divided into a revocable or irrevocable.
Trustee Duties and Responsibilities
In broad terms, the Trustee of a trust is responsible for protecting the trust assets and for administering the trust. The specific duties and responsibilities of a Trustee, however, are numerous and varied and may include:
- Managing trust assets
- Following the trust terms as created by the Settler (unless they are impossible, illegal, or unconscionable)
- Investing trust funds using the “Prudent Investor Standard”
- Monitoring trust investments
- Communicating with trust beneficiaries and keeping them apprised of trust business
- Resolving conflicts among beneficiaries
- Making discretionary decisions
- Distributing trust funds to beneficiaries
- Keeping detailed trust records
- Preparing and paying trust taxes
Questions to Ask When Choosing a Trustee
Do not make the same mistake so many Settlers make when choosing a Trustee. All too often a Settlor chooses a Trustee based on factors that truly have no bearing on the person’s ability to successfully administer the trust. If you have someone in mind, ask yourself the following questions to try and evaluate if the person would make a Trustee:
- Does he/she have any experience in the finance and/or legal field? Many of the tasks of a Trustee involve understanding complex legal and/or financial concepts so it certainly helps to appoint a Trustee with a legal and/or financial background.
- Would appointing this person as Trustee create a potential conflict? If the individual has a pre-existing relationship with trust beneficiaries, putting him/her in a position of control over assets meant for them could create an uncomfortable situation at best or a conflict at worst.
- Is he/she good at conflict resolution? It is not uncommon for conflicts to occur among the beneficiaries of a trust. A Trustee who is skilled at conflict resolution can go a long way toward avoiding costly litigation.
- Will he/she honor the trust purpose? The Trustee is legally bound by the terms of the trust as you wrote them unless a term is unconscionable, impossible, or illegal. Sometimes, however, a Trustee is required to use discretion or interpret a term. In that case, the trust purpose should be considered and honored, whether the Trustee agrees with the purpose or not. Make sure a potential Trustee can do that.
- Is he/she willing and available to serve as Trustee? Settlers frequently fail to discuss the appointment with their intended Trustee, instead simply assuming the person is willing to serve as Trustee. When it comes time to administer the trust, the individual does not have the time, has moved away, or has personal/medical issues that prevent the fulfillment of the duties of a Trustee – or simply doesn’t want to serve.
Contact Trust Administration Attorneys
For additional information, please join us for an upcoming FREE seminar. If you have additional questions about choosing a Trustee in the State of Illinois, contact the experienced trust administration attorneys at Nash, Nash, Bean & Ford, LLP by calling 309-944-2188 to schedule your appointment today.