MANAGING THE FAMILY TRUST BY COMMITTEE: THOUGHTS ON MULTIPLE CO-TRUSTEES

Does having multiple co-trustees run your family trust make sense?

Many high net worth clients have pre-conceived notions of who should serve as trustee of a family trust and why. Some of those notions may be right on point, and should be implemented. Having bright people guiding your wealth makes sense. Other ideas of who should be a co-trustee may be well-intentioned, perhaps the product of success in the board room or corporate America, but mis-placed for the family trust setting. Here are a few things to consider when appointing the trustees of your trust, or your family trust.

OK, so you are having your estate attorney prepare a trust for you which will benefit your spouse and family members. There are many reasons to do so, and trying to save taxes is just one reason. Regardless, one of the most important decisions you will need to make, or have someone make for you, is who will run the family trust? Who do you want in charge of the trust? Who is going to invest the money and who will entertain requests for money from your family members: and say “yes” or “no”?

Before you start naming everyone you respect or admire from a myriad of disciplines as a co-trustee, consider some of the points raised below. And consider how multiple trustees will function, or not function, together.

Do multiple co-trustees provide more insight, greater experience and better performance or more frustration and instability? Can “trust by committee” work?

Consider first who you are considering to run your trust. Some family trusts have multiple trustees. Some trustees are put there because of their experience and breadth of knowledge, like the smaller, upscale trust companies that cater to the ultra-high net worth set. Why not have a pro-a corporate trustee — after all? Well, that makes sense. But what about those other co-trustees named to serve?

Other trustees may be long-time family advisors such as business attorneys, corporate counsel, CPAs or financial officers of a client’s business. Senior family members, those that created the wealth, often feel comfortable with advisors they have worked with and relied on over the decades. They trust them and seek and appreciate their counsel. But being a trustee of a family trust is more than P&L’s, and number crunching , although that’s a big part of it. Does your pencil-pushing numbers gal or guy know how to evaluate a request for money from a grandchild who wants to “invest” in a real estate development in the Florida Keys? Does one’s business savvy transfer to prudent investing and constructing a portfolio that can withstand scrutiny under local trust law?

It may not make sense to add co-trustees like you stacked the board room at the company that you created.

You may naturally want to appoint family members as co-trustees. Some may be natural leaders who have demonstrated keen judgment, leadership and interest in maintaining and growing the family wealth. But others may be nominated to be a co-trustee. Why?

That’s precisely the point. One of the first things you need to ask yourself is why do I want a particular family member to serve as trustee? Don’t let personal feelings rule the day. This is, after all, serious business. Just wanting a son or daughter “involved” is not a reason to name them a co-trustee. There’s ways for family members go be involved with the family trust without being trustee.

Family members can play a role in the family trust and be involved with its administration and investing but just not as a co-trustee. You should only name someone a co-trustee if you can answer “yes” to the following question: “Does this person have the experience, knowledge and time commitment to run the family wealth, and can they work well with others, while making difficult decisions about investments, direction and distribution, and non-distribution of wealth to relatives?” If you answer “maybe”, “over time” or anything but an un-equivocal “yes”, then that’s a “no.” Move on. Heck, having a family member who can’t say “no” to a relative seeking money from the trust for some ridiculous scheme or “investment” is a reason not to name any family members as trustees. Ask yourself: who has the discipline to say “no”? Will some sons or daughters want money for matters that may not make sense? Of course. You need a co-trustee who has the discipline to objectively evaluate requests for trust money and say “no.” This will, no doubt, create family tension, which is another good reason to not have family members, let alone multiple trustees, serving.

Think 10, 20, 30 years down the road, or even more. Think about what the trust will look like when you are dead. What will it be worth? Who will be in charge? Will it still own a piece of the family business requiring important votes about the business? Or will the trust only hold marketable securities? Sometimes you KNOW who will not be a leader, or who will clash with others. Trust your gut. DON’T appoint that person as a trustee if it means mayhem. This is even true if you feel some family sense of affection to do so: don’t appoint a son or daughter as trustee just because they are your son or a daughter. Use your business sense and head: not your heart. After all, not every son and daughter can be a CEO or a CFO of a great company. And that’s what a trustee is.

One of the biggest criticisms of multiple co-trustees is that you end up running the trust by committee. A slow moving bureaucracy. You have to corral the co trustees to make decisions, take minutes of meetings and have votes. Just getting a hold of everyone can be a chore. This is certainly my experience where all family members serve as co-trustees or where there is one bank and all family members as co-trustees. Family members can be scattered across the country and in different time zones, each with different time commitments which make scheduling a simple conference call a project. Those family members without business acumen, knowledge of trust administration and a clear understanding of how to invest can frustrate other trustees. Co-trustees shouldn’t be spending their time explaining to other co-trustees s how to do their job. Multiple trustees can slow things down. Don’t create a bureaucracy . Keep those for our federal government.

While managing a trust by committee is not recommended, there may be very good, non-financial or personal reasons why you want to. You may want each generation represented. Of course, the converse is true: having too many chefs in the kitchen can create family animosity and pit “older” generations of your family wealth against “younger” ones.

But you are going to need a tie breaker or someone who is detached from the personal feelings that may exist. You need someone with backbone to make tough decisions when family members can’t. And you may need someone to blame. A trust company or non family member can be that tie-breaker, that non-emotional voice to make the decision that can’t be made by a cousin, grandson or parent of a beneficiary.

Wouldn’t it all make more sense to simply have a really good, upscale trust company serve as sole trustee ? And give some family members or advisors the right to remove and replace the trust company?