The Trustee

Who, What, When & Where

Overview


What is a Trustee?   
  • Collect Assets, Pay Debts/Taxes, Create a Record of All transactions (accounting)

  • Hire people (who is the real estate agent, attorney) 

  • Resolve conflicts and claims (i.e. gifts of personal items, trust litigation

  • Distribute the assets in the estate per the directions in the trust

  • They get paid about 1.5%

 

How to Pick a Trustee
  • A good trustee is usually a close relative or professional fiduciary.

  • A good trustee is kind, emotionally intelligent, and detail oriented

  • A US person (live in the US and are citizens or legal residents)

  • Are young and healthy (over 75 is maybe too old)

  • They are willing to do the job and personally invested in the outcome  (friends often quit when there is a family conflict)

  • Name one person with at least one back-up (co-trustees are not ideal)   

  • They are usually a beneficiary of the trust

 
Trustees when you have Young Children
  • Pick someone who will work well with your legal guardian (consider family conflicts)

  • The trustee can be the legal guardian

  • A professional fiduciary can be a good back-up or a way to avoid family conflicts

  • Your kids can automatically become the trustee when they are adults


Professional Fiduciaries
  • Licensed and insured

  • Most people don’t pick now, you have someone pick in the futur; that person can maintain hire/fire powers

  • Solid mid-range option:  its not as great as your sibling you love and trust completely, but not as bad as a family member who mismanages money

  • Not sure?  Check out our Comparison Chart [link to section 7 below]


 

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1. What Is a Trustee?

Nobody makes an estate plan just for the joy of paperwork. To make your plan work as you intend, you need real people who can act on your behalf. That’s what a trustee is all about.


Your trustee is the person you pick to take the lead—making sure your trust works as smoothly as possible.


They run your trust, follow your written instructions, and make judgment calls about anything you don’t specifically address in writing. They do not, however, have the power to change who receives what portion of the estate.


Ultimately, you’re giving your trustee great responsibility and authority. That’s why selecting the right  trustee is the most important choice in your estate plan. (Unless you have children under 18. Then picking the legal guardian for your kids is clearly the most important choice and selecting your trustee is number two.)


Here’s a quick job description.


The Trustee’s Job If You Pass Away
  • Hire an attorney (they are going to send a bunch of documents for you)

  • Collect the assets (Fill in a bunch of annoying forms)   

  • Pay Taxes and Debts

  • Keep track of what happened (List of the money that came in and out and why)

  • Distribute the Assets (send checks to beneficiaries)  

Hours: 1-5  hours per week for 6 months to a year

Compensation: Usually 1.5% of the trust assets unless you get sued, then your personal assets may be at risk. 


The Trustee’s Job If You Are Incapacitated  
  • Manage your bills, taxes, and make all your financial decisions on your behalf.   

  • Keep track of what happened (List of the money that came in and out and why)


The Tricky Bits That Make a Trustee’s Job Hard

 

It’s a Sprint, Then a Marathon

 

Trustees’ most common complaint is the time commitment. It’s finding the time to go to meetings, banks, sign documents, make choices, meet with real estate agents, and keep track of up to a hundred individual tasks. In some cases (like when the beneficiaries are small children), the job can last years or even decades. So being a trustee requires patience—especially patience when dealing with bureaucracy.


It’s a Family Drama

The trustee’s job starts at a moment when a whole family is stressed and sad. (Either you’ve just passed away or you’ve become incapacitated. Either way, it’s upsetting for your loved ones.) From there, the trustee starts working hard to fairly distribute the assets. But often, beneficiaries don’t understand why it is taking so long. And then there are disagreements between beneficiaries. For example, one family member may want to buy your house while another thinks it’d sell for more on the market. So your trustee needs real emotional intelligence to see the job through.

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2. How Do You Pick a Trustee?

Since being a trustee is a hard job, it’s not uncommon for trustees to quit or decline to serve. So it’s a good idea to choose someone who is personally invested in the outcome of the trust. Someone who’s in good health (physically and mentally) and likely to stay that way for many years to come (so under age 75 if possible).


A good trustee is kind, emotionally intelligent, and detail oriented. They have the time to do the job here in the United States. (So don’t pick someone who is incredibly busy or living out of the country.) They have the ability to work independently, and they are willing to hire help when they need it (usually from lawyers and financial professionals).


A good trustee is one person. It’s technically possible to pick co-trustees, but we’ve found this often creates more problems than solutions.


Long story short: most people choose either a close relative or a professional fiduciary to be their trustee.


Qualities to Look for
  • Organized

  • Timely

  • Polite

  • Patient

  • Able to prioritize

  • Excellent conflict resolution skills


What Trustees Don’t Need

They do not need to be good at finances or law. They just need to be willing and able to hire an attorney, accountant or financial adviser—then follow  their recommendations.


Yellow Flags 
  • You are picking favorites (they are your best friend, your oldest child, or someone who expects to be appointed—but not someone who would fit the job description)

  • They’re too old or busy to do a good job

  • They have no personal investment in the outcome (they’re not a beneficiary, they’re not related to you or other beneficiaries, they're not a professional fiduciary)... These people usually resign

  • They have no experience managing the amount of money in your estate. (They are a lovely couple from the middle of the country, but they have never seen a million dollars.)

 

Red Flags
  • Drug, alcohol, or mental health problems

  • Known family conflicts (they do not like the beneficiaries, the beneficiaries do not like them, or they have a high-conflict personality)

  • Too busy to do the job

  • They live in another country or do not have US ID.

 

What Happens If You Pick the Wrong Person?

 

Several things can go wrong if your finances and plans get mishandled, disorganized, or just ignored. When the beneficiaries are young kids, a trustee has to look after the finances for many years before they are ready to take over. If the trustee makes sloppy mistakes or doesn’t keep track of spending—it’s possible for some or even all of the estate to be lost before the kids have a chance to receive it.

 

The most common problem we’ve seen is a trustee who fails to take action at all. They just don’t do the job. And so your beneficiaries have to spend as much as $10,000 and up to 3 years filing paperwork to get the trustee replaced.

 

Choosing the Right Trustee for Your Situation

 

Now that you’ve got the big picture, let’s dial in on things that you may want to keep in mind based on your specific situation.

 

How to pick a trustee if you have young children

How to pick a trustee if you are a single adult

How to pick a trustee if you have adult children

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3. How to Pick a Trustee If You Have Young Children

If you have small kids, your estate plan usually centers around two big choices: picking the legal guardian who would look after your children until they’re 18, and choosing the trustee who will run the plan for the finances until your kids are old enough to manage their finances on their own.


It’s ok to pick one person who will be both the guardian and the trustee, but this can be a lot to ask of someone. It takes one set of skills to take on the sacred duty of raising your children. And it takes another set of skills to manage large amounts of money for a long period of time. (Common situation: home value + life insurance + retirement accounts = $3-5 million.)


Our clients’ most common choice is to have a close family member, usually a sibling, serve as both the legal guardian and the trustee. Often clients name a professional fiduciary as a backup trustee in case the sibling can’t do the job at any point in the future for whatever reason.


If you do pick two people to take on these two roles, keep in mind that they will need to be able to get along and work together for many years. That’s why we usually don’t recommend choosing two family members to do these jobs unless they have a truly amazing relationship filled with joy and trust and bills.


So if you don’t think your legal guardian is a good fit for the financial responsibilities of being your trustee, we recommend selecting a professional fiduciary instead. An experienced (and insured) pro can make a world of difference handling complicated financial issues over the long term. You can name family members to have hire/fire powers in case the professional fiduciary ends up not being a great fit.


In fact, Sarah and Kelly (our managing attorneys at Summerall Law) both decided professional fiduciaries as back-ups were the right pick for their personal estate plans.

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4. How to Pick a Trustee If You Are a Single Adult

If you’re a single adult, one primary concern is making sure you’re looked after if you become incapacitated. This is especially true for some of our older clients who are often focused on ensuring their care and finances are managed properly. 

 

The most common way our clients address this is by naming a sibling or friend as their trustee, and then naming a professional fiduciary as a backup.

 

Your sibling or friend may know you best, but they are aging too. And the job of trustee may be quite a burden for someone who’s health and capacity may be faltering in the years ahead. Having a fiduciary on hand as backup ensures you’ll have someone ready and able to manage your care and finances when you need help.

 

It’s also common for clients to name an adult niece or nephew as their trustee. This sorts out the concerns about an aging trustee. But it can have its own problems if your niece or nephew doesn’t have the ability to drop everything and come take care of you when you need the help. Unfortunately, a lot of these trustees end up quitting for that reason. So it’s especially important to name a fiduciary as a backup if you’re going to go with this option.

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5. How to Pick a Trustee If You Have Adult Children

For most clients they will select their adult children to serve as trustees in the order of age.  This is the best solution for most clients.  

 

We do caution our clients, to try not to feel obligated to name children in order of age, and only name children who are really a good fit for the jog of trustee - they are able and willing to do the job and they will not create family drama.   We have had a lot of experience with clients naming problematic children as back-up trustees or co-trustees because they did not want the child to feel bad.  Since it is fairly common for the first trustee to not be able to serve, they problematic child can end up serving and cause a number of issues. Picking a child who is not local is a feasible option in the modern world.

 

Many clients want to name co-trustees or split the job of trustee, power of attorney, and health care agent, in order to avoid hurt feelings within the family.  This often ends up being a burden on th person who is actually doing all the work. If one of your kids is going to be the person who takes care of you and the other one is unlikely to be involved, do the first kid a favor, and leave the other child out of key roles and decision making.

 

If you have a child who is living in your home, taking care of you and managing your bills, please be clear with them and in your trust on what happens when you pass away.   Often, these children/trustees feel entitled to stay in the home after the passing of the parent.   If that is what you want, it needs to say that in your trust, otherwise, it is their duty to move out of the house.   If you want to pay them for their time and effort in caretaking, state it in your trust.   The reverse is true as well - some clients feel that if a family member is taking care of them they are not entitled to additional compensation.  It can be helpful to state that in your trust.    

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6. What Is A Professional Fiduciary Trustee?

Choosing your trustee is one of the biggest decisions in estate planning. And often, it isn’t easy to think of a close family member who has what it takes to do the job right. That’s perfectly ok. It happens all the time. There’s a world of talented, experienced professionals who can step in and help your plan go as smoothly as possible. These people are professional fiduciaries.

 

Who Are They?

 

A professional fiduciary is a lawyer or banker who has passed the test, has an active license, and carries special insurance—all to make sure they are ready and able to serve as a trustee. Usually, their entire practice is dedicated to acting on behalf of estates. This is what they do. 

 

Why Would I Want One?

This isn’t their first rodeo. A professional fiduciary knows how to navigate some of the roughest bits of serving as a trustee. So the risk of a costly mistake is much lower. And the speed of the process is often quite a bit quicker. Plus, no family drama.

 

Pros:   
  • Fewer family feuds (no arguments at future Thanksgiving dinners)  

  • Faster (this is their full-time job)  

  • Less likely to make expensive mistakes (like not carrying insurance on the home or letting a stock rapidly decline)

  • Insurance

Cons:   
  • Personal decisions are being made outside the family

  • If there is litigation, it will probably be more expensive than suing a family member

 

How Much Do They Cost?

$100-$300 per hour.  Keep in mind that all trustees get paid, even if they’re a family member. This hourly fee may be more or less than what a family trustee would charge (typically a small percentage of the estate).

 

How Does It Work?


At Summerall Law, we make it easy to go with a pro if that’s what you want. It’s a 3-step process.
  1.  We make your trust say you want a professional fiduciary.

  2.  You decide if you want to be the one to pick the pro or if you want your friends and family to pick the pro later when one is needed, potentially decades from now.

  3.  The person who picks the trustee can retain powers to fire them if it is not working out.

 

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7. Estate Plan Trustee: Use Family or Go with a Pro?

Here is a basic outline of the pros and cons of using a family member versus a professional fiduciary.

Professional

Family Member

Getting the Job done

Very likely job will be completed in a reasonable period of time

Very likely they will struggle with this task for years

Conflict in the Family

Fewer family feuds, if they hate someone, they hate someone not related to them

Might have more insight into the family dynamics, you know them personally and how they would likely resolve a situation

Cost

Hourly fees, will bill for all time the spend

Will probably take % -
Attorney fees might be higher, because they need more guidance or make mistakes, will cost more if there is litigation

Stealing from the Estate or Loss

I have not seen it happen. 
IF it were to happen, they do have insurance to cover losses and theft.

I don’t see a lot of stealing; I see a lot of wasting of assets and costly poor/unfair decision making.

Insurance

Always have

Almost never have

Personal Decisions

Will probably used business standard conflict management techniques, likely to be resolved faster

More likely to do what they think is right (rather than fair under the law), it will likely take longer to resolve

Attorney Relationship

They likely have attorneys they know and like

Will need to work with an attorney, may spend a lot on fees having the process explained, however, some work alone or with minimal attorney oversight

Caring for You in Old Age

Unlikely to allow elder abuse to occur, will likely cost more, usually plugged into quality home health care providers, not a burden on your family

Elder abuse is more common (financial and not receiving proper medical care), the trustee is likely to be overwhelmed and overstretched, it is very hard on the family.

 
 

8. How to Pick a Custodial Guardian

When you’re a parent of kids under 18, estate planning is about much more than money. It’s about ensuring your children are well taken care of no matter what happens to you and your partner.

 

That’s what the custodial guardian is all about. If you pass away or become incapacitated, the custodial guardian is the person you choose to take on the sacred responsibility of raising your kids until they are 18. This person is in charge of housing, feeding, clothing, schooling, making decisions about medical care for your kids.

 

It’s everything but the money. You can pick a different person (if you want) to be the financial guardian, managing money for your kids until they’re old enough and mature enough to take on that responsibility themselves.


How a Nominated Guardian becomes the Legal Guardian

You can’t automatically make someone take care of your kids. Your nominated guardian can decline to serve, and in California, they also have to be approved by the court.  You must nominate a person, not a professional service provider.

 

If the person you nominate declines to serve, it will go to the next person nominated, if no one else is listed, Child Protective Services will reach out to everyone in your family to see if someone is able to take the children. 

 

Whomever is appointed as legal guardian will have the option of quitting at any time.   They can call CPS and tell them they no longer want to care for the kids, and CPS will come collect the children within 24 hours.

 

If you are divorced the other parent will have custody if you pass away. You can nominate the person to have custody if the other parent has also passed away. If the other parent makes a different nomination the court picks between the two nominees using a ‘best interest of the child” standard.


How Court Approval Works:  
  • Any person who wants to be nominated may petition the court to approve their request.

  • If there is more than one applicant, the Court will select a guardian based on what is in the best interest of the child.

  • The court will consider your nomination as important evidence that placing the child with the nominee is what is in the best interest of the child, but the court will also consider all other relevant evidence - what the child wants, a history of criminal convictions, health problems, etc.

  • Courts prefer a permanent placement, and that usually means family - friends are more likely to decline to serve or to step down (especially if family wants to serve)

  • The courts will continue to monitor the child and the legal guardian until the child is an adult.

 

Pick a Good Home For the Long Term

Choose someone who would provide the best permanent home for your children, even if they don’t live nearby. Young kids can move. If your children are older at the time, the court will consider their preferences.


If children are in high school, they get a lot of vote in where they want to stay.   If they want to stay where they are, they can apply to become an emancipated minor (a minor who has the status of an adult) or stay with a friend. That way they can finish high school in the place of their choosing.

 

Grandparents Are a Risky Choice

For many clients their first instinct is to pick their own parents to serve as custodial guardian, but this comes with a few significant problems.


The first problem is that it can set up your kids to lose another set of “parents” again in the first few decades of their life. Kids often form a new parental bond with the custodial guardian. If that person is already at an advanced age, your kids might soon go through another big emotional loss. This can also mean your kids may go through their 20s and 30s without the support of a parental figure at all.


The second issue is that age inevitably slows everyone down. So keep in mind that grandparents who have the energy to keep up with a 1-year-old now may not have the stamina to provide the right support to a teenager in 15 years.


And remember that if your parents are close to your kids now, they can still be loving, supportive figures in your kids' lives even if they don’t become the custodial guardian. They are still family.


For some people, regardless of age, parents are the right choice.   We can encourage your trustee to provide help through nannies, housekeepers, and help pay for the parents housing, if they are advanced in age or have financial limitations.

 

How we Support Guardians in Our Trusts (why our trusts our better)

The biggest problem with guardian nominations in most estate plans is failure to authorize gifts to the legal guardian. The presumption under the law is that the funds in your estate are for the support of your children, not for the support of the legal guardian. This can be problematic for your guardian because sometimes the best choice for your kids, is going to require a gift to your guardian - a gift that is not authorized by the trust.  

 

The biggest problem in the bay area is housing.   Your sibling or parent might be willing to move from Ohio and come and stay with the children, but there is no way they can pay market rent for your home.   We recommend and include clauses that authorize the trustee to allow your guardian to live in your home rent free, and use your car if needed.  

 

The next problem is legal feels and expenses.  The best long-term solution is usually for the legal guardian to adopt the child.  Outside of the emotional stability that can provide for your child and the guardian, it is also makes day-to-day life simpler for the guardian.   Once the adoption is approved, your legal guardian will have all the same rights as a parent - they can move out of state or the country and they do not have to report to the court or to CPS.  An adoption can be expensive, and it is not an expense of the child - it is an expense of the guardian.   Our trusts specifically authorize adoption expenses and any other legal fees of guardian be paid by the trust. 

 

The other issue is having a power of attorney over child care.  Hopefully you never need it, but if you become incapacitated or are travelling and cannot be reached, your family may need to make a medical or educational decision for your child.   Having a power of attorney over child care can make that process simpler for them.  We include this authority in your plan so you are not scrambling the day before a trip or surgery trying to get it done.  

 

Many families struggle with making sure both sides of the family will feel included and be part of the child’s life no matter who is nominated.  While we cannot force the legal guardian to  authorize visitation, we can authorize the trustee to pay for any expenses related to visiting both sides of the family. While it is not a perfect solution, it is better than nothing, and helps family’s feel that they have done everything they can to keep both sides of the family involved with a child’s life.   

 

International Guardians Take a Little Extra Planning

For a lot of clients, the perfect person to serve as custodial guardian lives outside of the United States. This is completely ok. It just takes a little more planning to make the details work just right.
We recommend naming someone living in the United States to serve as a temporary custodial guardian. Moving a child out of the country requires permission from the court - either an adotpion or a permision through the probate court.  It can take a year for the legal process that lets a foreign person adopt your kids and move them out of the country. Your temporary custodial guardian can look after your kids during this time.

 

Many people believe that your family can come, get your kids, and quickly take them home to another country. But it’s actually illegal to move your kids like this, and it can make it very hard for your kids or family to come back to the country later.

 

On the other hand, if your custodial guardian goes through the adoption process first, it can make life easier for your kids in the future. For example, it’s easier for your children to keep their US citizenship—but this should really be discussed with an immigration attorney at the time.

 

We also want to think about two common issues that can come up. The first is making sure the proposed guardian gets authorization to stay in the US long enough to get custody. If they cannot come into the country on a visa for some reason, this can create a problem. And we also want to consider any language barriers. If language might be an issue, it’s important to make sure there are people who can help translate at important moments.

 

Keeping contact information organized and available for the temporary guardian and the permanent guardian can help solve some of these issues. 

 

How we Support International Guardians in Our Trusts

It is very important to have funds available readily in these situations. Do your estate plan, don’t let your assets get tied up in probate court.  There are two reasons for this 1) it may take two years to get funds out of of probate court 2) even once te funds are available they cannot be used for the legal guardians expenses, only the child’s expenses.  If you have a trust, the funds will likely be available in two months and our estate plans specifically authorize the trustee to pay for your legal guardian to adopt a child or to otherwise pay for legal fees of the legal guardian.

 

Keeping Problematic Family Members from Becoming Guardian

For a lot of clients, it’s important to spell out who should never become custodial guardian. Perhaps there’s someone in your family with severe mental health or addiction issues. Or maybe there are issues of abuse of one kind or another. Whatever the reason, please tell us if there is someone you want to explicitly stop from getting custody of your children.

 

If something happens and your appointed guardian cannot take on the role, the court may need to make that choice for you. And if your family member’s problems are not a matter of public record (no arrests, convictions, etc), the court won’t know that the problems exist at all.

 

You have several options for preventing someone from becoming a guardian. Let’s go through them from strongest to softest.

 

Your Strongest Option

Include a signed document setting out the problematic facts (a declaration) with the nomination that explains why someone is not a good choice. This is a formal document intended for the court and it provides clear reasons. Because it will be presented in court it will not be private.

 

Your Medium Option

Write a letter to your family explaining your choices and who you want and why. This doesn’t have to become a part of your estate plan so it is a more private way to help persuade someone who you don’t want to serve as guardian to not come forward.

 

Your Softest Option

If putting something in writing seems too aggressive or too likely to prevent conflict, nominate a whole list of other people to serve ahead of the problematic person.  The court is likely to go with your choice—even if it’s your seventh or tenth choice—before they step in and pick someone themselves. This can work if there are other people who will step forward to become the guardian.

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