Who Should I Choose as a Successor Trustee?

In our recent Living Wisely seminar titled, “Let’s Talk Estate Planning”, we delved into how instruments like trusts can help you manage your assets during your lifetime and after your death. A key takeaway was how important it is to select the right people in your estate planning. Nowhere is that more important than with selecting the right successor trustee for a trust.
successor-trustee

What a successor trustee does

For a revocable trust, the creators of the trust (“trustors”) are the initial trustees. A successor trustee(s) assumes the trustee role upon the incapacity or death of the initial trustees (usually you and your spouse). Once the successor trustee becomes the trustee, he or she is responsible for administering the trust for the benefit of the beneficiary(ies). Duties include tasks such as managing and distributing assets, filing proper tax returns and keeping accurate records. But a trustee is more than just an administrator – typically the trustee is the decision-maker and the primary point of contact for anything to do with the trust. For example, the trustee is responsible for overseeing the care and well-being of ill beneficiaries, minors or dependents.

Considerations for naming a successor trustee

Since the trustee’s job is so important, it’s critical to choose the right person to act as trustee when you no longer can. Make sure your successor trustee has these attributes:

  • Can be counted on to represent the trustors’ and beneficiaries’ interests
  • Able to make unbiased and objective decisions
  • Has sufficient time to manage your affairs
  • Able to work with co-trustees (if any), executors or agents, family members, and professional advisors
  • Has experience handling finances
  • Detail-oriented and able to follow through

What if there are no good candidates?

If you are concerned that none of your family members have what it takes to be a successor trustee, you have a number of other options:

  • Naming a Professional Fiduciary: A professional fiduciary is a licensed individual who serves as a trustee and manages a client’s financial and personal affairs. They can often provide more personalized services and collaborate with the client’s existing team of legal, tax and investment professionals to fulfill the trustee’s responsibilities. Private fiduciaries often work in teams or as a part of a larger group of fiduciaries in order to address issues of succession.
  • Naming a Private Trust Company: The trust company serves as a trustee and will manage the trust assets for the benefit of the beneficiaries. Under this structure, no individual trustee is named. The company will assign a trustee when the need arises. The service is typically less personalized. Often times, the trustee will rely more heavily on the agents named in the durable power of attorney and advanced health care directive to oversee the care of ill beneficiaries, dependents and/or minors.
  • Naming the trust division of a Bank or Investment Management Firm: Many banks or investment management firms have trust divisions who can step in and assign a trustee when the need arises. Trust divisions tend to provide legal, tax and investment related services in-house, and may not be willing to work the clients’ existing team of professionals. Services tend to focus on administrative and financial responsibilities, and not more personal areas such as overseeing the care of ill beneficiaries, dependents and/or minors.
  • Allowing your successor trustee to name or work with a private fiduciary, private trust company, or bank.

Fee and service considerations

There is no standardization of services or prices across the industry. Professional trustees may charge an hourly or flat fee, or a percentage of assets under management, which can be anywhere from 0.5% to 3%. We recommend meeting with several individuals and/or companies to understand their services and fees prior to choosing a successor trustee.

Choosing a successor trustee may not be easy or pleasant, but it’s a decision that needs to be made sooner rather than later. Please contact us if you would like to discuss this topic further.

About Monica Ma

Monica Ma, CFP®, CFA® is an advisor and the chair of the Investment Committee at Blankinship & Foster LLC. She helps clients build sound investment portfolios and develop strategic plans to reach their goals. Since Monica is passionate about sharing her knowledge with women and retirees, she co-leads the firm's Wise Women and Living Wisely Educational Series. Monica is a member of the International Community Foundation's Investment and Finance Committee. She has been living in San Diego since 2008 and enjoys travelling and cooking with her family.

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