The trustee you select when establishing a trust is a pivotal decision in your estate planning journey. In the case of a revocable living trust, which you create during your lifetime and can modify at will, you may initially act as the trustee, retaining full control over and benefit of the assets within it. However, have you considered what occurs if your health deteriorates or you find yourself incapacitated due to unforeseen circumstances? With today’s increased life expectancies, the likelihood of facing health issues, such as dementia, in later years is on the rise. This can render managing your financial affairs impossible. Furthermore, planning for what transpires after your demise is equally crucial. Naming a successor trustee, as well as an alternate in case the first successor is unable or unwilling to serve, is essential. This ensures seamless management of the trust on your behalf in the event of your incapacity or passing.
Selecting a Trustee: A Matter of Trust
Certain qualities are essential when considering a trustee. Trustworthiness and responsibility are paramount, as are sound financial and investment decision-making abilities. The chosen trustee must also be dedicated to carrying out your wishes as expressed in your trust document. Depending on your circumstances, you may decide to have distinct trustees appointed for your incapacity and your passing. On the other hand, you might prefer the same trustee to serve in both situations.
Different Trustees for Different Scenarios
During your lifetime, you are the primary beneficiary of your revocable living trust. In the event of incapacity, you may favor a family member, such as a spouse, child, or a close relative, to assume the role of trustee. Not only are they legally obliged to act in your best interests, but they also know you intimately, understand your needs, and are motivated by their love for you. They can ensure your affairs are managed in a manner that optimally benefits you. A family member serving as a trustee is entitled to reasonable compensation for their work, but they may forgo it. Importantly, because there typically are no other trust beneficiaries during your lifetime, the risk of the trustee displaying favoritism or partiality between beneficiaries is minimized.
It’s advisable to consider naming the same person you’ve designated as your agent in a financial power of attorney to also serve as your trustee. While your trustee oversees the assets held in your trust, your agent under a financial power of attorney is generally authorized to manage non-trust assets, pay bills, enter into contracts, and engage in other financial transactions on your behalf. The person you appoint as your agent should meet the same criteria as those used in selecting a successor trustee: they should be honest, reliable, and capable.
At Your Passing:
After your demise, you are no longer the beneficiary of your trust; instead, your trust’s beneficiaries, as designated in your trust document, receive distributions following your death. Naming your spouse or child as your successor trustee might prove challenging for them due to grief and distress. Additionally, family conflicts or disharmony can surface, especially if you have children from previous marriages or blended families. Appointing a professional trustee, a trusted friend, or a reliable business associate who can be relied on to act impartially can help avert family disputes.
The Same Trustee for Both Incapacity and Death:
Should the risk of family discord be minimal, you might choose to have the same person serve as your successor trustee during both your incapacity and following your death. This approach presents several benefits. It requires less preparation for either scenario as only one individual needs to familiarize themselves with your affairs. This approach ensures a smoother transition in the event of incapacity since the trustee is already in place, reducing stress.
We’re Here to Help:
Determining your successor trustee is a pivotal decision in your estate planning process. We can provide guidance on whether to opt for the same trustee or different trustees in cases of incapacity or death, selecting multiple trustees, or appointing a professional trustee. Our goal is to assist you in reaching your objectives and minimizing potential conflicts within your family after your passing. Contact us today to schedule a consultation, allowing us to support you in making these vital decisions regarding your estate plan.