CHOOSING AN APPROPRIATE TRUSTEE ARRANGEMENT

It is important to choose an appropriate trustee or successor trustee.  Grantors of a revocable living trust might be uninterested in or unable to serve as trustees.  Using a third party or institution as trustee, however, does not mean loss of ultimate control.  The grantor can issue orders to the trustee—or fire him or her—if necessary.  During life, therefore, a bad trustee choice can be corrected, at least while the grantor is mentally competent to do so.  The decision of who will serve as trustee deserves a lot more thought than it usually gets. 

A lawyer can draft a document with almost any kind of conditions to guide, dictate, or limit the use of trust funds, but the grantor needs to find a party willing and able to make sure things run smoothly. 

There are two very different aspects to the trustee's duties:

Managing the assets wisely from an investment point of view. Applying the funds as called for by the trust, and only in that way.

Furthermore, even if the grantor serves initially as his or her own trustee, a qualified successor trustee will ultimately be needed, unless the grantor lives forever. 

In some families, an adult child is well suited to the role of trustee (or successor).  Unfortunately, however, that choice often is made without consideration of a very practical matter: This child is probably also a trust beneficiary.  Therefore, he or she is immediately presented with at least the opportunity to cheat the other beneficiaries.  Even this perception could fuel family disharmony during a very stressful time.  If this possibility appears even remotely likely, the grantor should confront it and another successor trustee should be named.

If there are no other appropriate trusted friends or family members, an institutional trustee should be considered.  Generally, these are banks, brokerages, or trust companies.  Most institutional trustees use trust committees to make investments and monitor subsequent performance.  For many trusts, besides the investment committee, there is a trust committee to determine the needs of the beneficiaries and appropriate use of trust funds.

Most institutions will charge an annual trustee's fee in the neighborhood of one percent to three percent of the property under management.  The fee will depend on the nature and size of the trust principal under management and the day-to-day involvement required of the trustee's employees.  If less than $250,000 were involved, it probably wouldn't make sense to use an institutional trustee.

The downside of institutional trustees, however, is that a group of strangers cannot be expected to have the same insight and sensitivity a family member or friend would offer your heirs.  One solution might be choosing a family member or friend as co-trustee or advisor to the institution, to provide input and advice with a personal touch.

It is important to choose the right trustee for the successful management of a living trust. Now let's review what we have learned.