When going over your estate plan, it’s easy to get lost in the jargon. This occurred to me recently during a meeting with a client, Patricia, who was upset that one of her sons was not listed in her documents as a successor trustee.
I was befuddled since this very same client told me how irresponsible this son was. In fact, I distinctly remembered the client saying that she didn’t want this son to have any control over the client’s bank or brokerage accounts. So I first confirmed with her that we were talking about the same person.
“Well, yes,” Patricia answered, “I don’t want him to control any of my money, at least while I’m alive.”
“So why are you upset that he is not going to serve as your trustee?” I asked.
“Because I still want to treat all my children equally!”
This is where I explain that being a trustee is not an honor, nor does it bestow any more of a beneficial interest on the person acting as trustee. Instead, acting as a trustee is a job. It is laden with a lot of responsibility.
Whomever serves as your successor trustee must have the ability to interact with your financial advisors to determine what your asset mix should consist of. In fact, your trustee is held to the prudent investor standard under Florida law. Violating that standard could lead to a lawsuit where the other beneficiaries of the trust recover damages against the trustee.
If stocks or bonds need to be sold in order to have cash to pay for in-home nursing care or other convalescent care expenses, your trustee is the one who makes decisions which assets should be sold to do that. If you need to move out of your home for care, then the family member that you have named as your trustee will have to decide whether to continue to have your finances continue to carry the expenses associated with owning the home or whether it would be prudent to sell it.
These are not easy decisions.
Your trustee will file your tax returns. He or she will interact with your CPA as well as your attorney when deciding legal matters associated with your estate. When you die, your trustee will have a fiduciary duty to your creditors, taxing authorities and the other beneficiaries. If your trustee violates these fiduciary duties then he or she can be held liable, and have to pay an attorney out of their own pocket to defend the claims or to satisfy any judgments if they are deemed to have acted negligently.
Just because someone is a trustee does not mean that the amount that they are entitled to as a beneficiary will change. If Cynthia is a 25% beneficiary of the estate, she does not receive any additional beneficial interest when acting as the trustee.
Cynthia may get reimbursed for her out of pocket expenses associated with fulfilling her trustee duties, such as air fare, car rental, hotel expenses, overnight express charges and the like. She will also be entitled to take a trustee’s fee for her time. The fee that she takes is usually well earned, and is taxed as ordinary income much like a CPA’s or attorney’s fees would be taxed to them as ordinary income.
Many family members graciously perform their duties without taking a fee. More often than not, his or her siblings will not appreciate it and expect the child you have selected to act as trustee to do it all for free even though the duties can be enormously burdensome.
It is therefore vitally important when naming a trustee that you select someone who will devote the requisite time and attention to these important matters, and will be comfortable interacting with your professionals. Someone who is confident, diligent and detail oriented makes for a fine trustee. They don’t necessarily have to have any background in law, accounting or taxes. So long as they know how to interact with your team of professionals, it usually works out fine.
As you can see, it really isn’t a matter of being fair to one child or another. I would go so far as to say that not only have you not bestowed an honor upon the family member that you select as your trustee, rather you have handed them a job. A big job, at that.
So don’t worry about being equal. Select the family member who is the most likely to do the job right.
To make sure you’ve selected the proper trustee, visit www.estateprograms.com/selectingyourtrustee for a complimentary copy of my book on the matter.
© 2019 Craig R. Hersch. Originally published in the Sanibel Island Sun.