How to choose a Trustee?

TrusteeA lot of our clients ask us for advice on how to pick a trustee.  The answer is not the same for everyone.  For example, one client’s most prudent choice may be their brother.  On the other hand we may recommend to another client that his brother is the last person on earth they should appoint.  The answer is very dependent on each individual’s or family’s circumstances. There are a few common themes that everyone should consider though when choosing a trustee.  Some of them are as follows:

A trustee should possess business judgment (even if there is no business), honesty, and integrity. The trustee must be able and willing to exercise a high degree of care over trust property and avoid investments or acts that are likely to result in losses.

Assessing whether there is a potential conflict of interest the trustee may have is important.  A trustee should not have an incentive or be compelled to do something in his best interests and not in the best interests of the beneficiaries of a trust.

Geographical considerations are important. Having a trustee living close to beneficiaries tends to work best as they are nearby if pertinent issues occur and to keep close ties.

The type and size of assets to be placed into the trust, as well as the client’s goals, are important considerations in selecting a trustee. Obviously, if the client’s primary asset is a business, the trustee will have much more responsibility and must have higher and broader competence than if the trust’s assets consisted mainly of cash.

Investment skill is necessary. Under the “prudent person” rule, a trustee will be liable to the beneficiary for losses unless he exercises the same care and skill that a person of ordinary prudence would exercise in dealing with his own property. But the Uniform Probate Code, now in effect in some form in most states, raises this standard for professional trustees by providing: “If the trustee has greater skill than that of a man of ordinary prudence, he is under a duty to exercise such skill.”

Because a trustee must examine and review the trust periodically, administrative and legal skills and knowledge are important. Accountings must be made to the client and eventually to the other beneficiaries. All parties must be advised accurately on the tax and other legal effects. Provisions in the trust must, from time to time, be interpreted.