HOW NOT TO CHOOSE A FAMILY TRUSTEE: a look at choosing a family member as an individual trustee of your family trust

So, you are creating a massive family trust for your “descendants” or “heirs”. Maybe you are placing some of the family’s private business interests in the trust, or perhaps creating one of those so called multi-generational 500 year “dynasty” trusts. Or, perhaps nothing that sexy: a simple revocable trust that becomes irrevocable when you die, to benefit your spouse and then children and grandchildren for 2, 3, 4 or perhaps even more generations.

Who’s going to run the show?

Choosing trustees may not be easy for you. I find that two areas of the law where clients do NOT give enough time, consideration and re-thinking to, are, first, whether you really want to create a trust, and secondly, who shall serve as trustee. Let’s consider the second of those two points:

If you are thinking about having more than one trustee, have a pro on board. Choosing a professional, that is, a bank or a trust company, is easy. Find one with experience and knowhow. Brain power. Then keep the right to fire them at any time. ‘Nough said.

How do you choose individual trustees?

First, consider whether an individual trustee is even needed. Why not have a corporate trustee or family office be the sole trustee? They can administer and invest your trust while also weighing requests for trust money from your beneficiaries-your children, grandchildren, great grandchildren. After all, you aren’t going to create a trust that just throws money in your heirs’ laps, right? That’s silly and a trust isn’t even needed for such folly. No, you empower your trustee with authority, even discretion, to distribute— or not distribute— family wealth to your family members ….including some members of your family who have not grown up yet (grandchildren), some who have not even been born yet (great grand children) and some who will never grow up (misfits and malcontents). That’s how a trust usually operates: a family member (beneficiary) requests money from the trustee who then makes a decision based on your intent and your standards for distribution of family wealth as you laid out in your trust. That’s absolutely why you have a trust: to manage your wealth from the grave! ……Through your trustee.

It may be a natural inclination to think of naming one or more family members as co-trustees. But consider this: if you have an individual trustee who is a family member making the decision over what family members get-and don’t get-trust money, that will definitely cause hard feelings and family dis-harmony; if that stuff is even of concern to you. “I can’t believe my cousin Jane, as co-trustee, would not give me trust money to rent a winter ski Chalet in Aspen!” will echo over emails, text messages, social media, holiday dinners and weddings, let alone family reunions after a few drinks. So, do you even need a family member serving as a trustee?

Two: so, ask yourself, if I’m appointing a family member as co-trustee, is he or she strong enough to say “no” to those family beneficiaries who want money for wacky ideas? Because I guarantee you, as night follows day, your kids or grandkids, or better yet their spouses, boyfriends and girlfriends, or in-laws or outlaw friends, will try to convince you to give them trust money to “invest” in their “startup”, because they have the next Facebook or Twitter. “Just give me an advance…..on my inheritance….. grandma would want me to have it” they will beseech. Who is strong enough to put “family” and blood on the back table and use trust money wisely and invest it prudently? Who has the discipline to say “no”?

Three, who has the time and experience to administer a trust? Investing millions is serious business, even if your professional co-trustee, the trust company, does it, or you farm out investment functions to an investment manager. You still need to understand investing, budgets, rules of administration, trust law, taxes and requests for distribution of trust funds. While you can make an argument that you can hire good counsel and advisors, do you really want an individual co-trustee going in blind? Most individuals, quite frankly, don’t have the time or experience to manage money, let alone administer a trust.

In the end, there are ways for family members to “check” a professional trustee. You can create checks and balances to insure that the professional trustee is responsive, spending the time and providing the attention to the family trust that you want and expect. You can name a trust protector with the authority to remove the professional trustee or to take actions in the best interests of the trust or the beneficiaries. You can give a particular beneficiary (a “Czar” bene), or a class of beneficiaries, the right to remove a trustee by a majority vote, and even for specific purposes or reasons. In addition, your trust, or the trust’s governing law, can require that annual accountings be provided to the beneficiaries, as well as relevant information and monthly statements. This gives your family members a peek at what’s going on in the trust on a regular basis. My point is this: there are many ways for family members to stay informed, stay involved and be knowledgeable about the family trust without having or needing one of them to serve as a co-trustee.

In the end, think of what got you here. How did you make all this money? ….Probably by not being just lucky. ……Probably by evaluating your options and risks, contemplating a course of action and then following through. You should do the same when deciding who should manage your family’s trust and wealth, now and when you are gone.