Choosing a Trustee

By: Martha A. Churchill and Patricia E. Kefalas Dudek

A key issue for the estate-planning client is the selection of an appropriate trustee. Most often, the trust will be funded when the parents die. Should the trustee be a close relative, such as a sibling? An agency which serves persons with disabilities, such as a local ARC (formerly know as the Association for Retarded Citizens)? A financial institution? An attorney?

In a few cases, the lucky parents will identify a close family member who is highly responsible and who cares deeply about the person's welfare. If so, that solves the problem of choosing a trustee. There should be some thought given to a successor trustee should the first choice be unable to act.

A bank or other financial institution can serve as trustee. However, financial institutions take a percentage off the top each year for administrative expenses and generally will not accept trusts with less than half a million dollars¹⁴. Further, a bank will not know when Freddie needs special vocational services or a new fishing pole. Obviously, someone who knows and loves Freddie will have to participate in the trustee's decisions, either as an advisor or as co-trustee, even if a financial institution is appointed trustee.

It is a good policy to have a financial advisor involved in making investment decisions for the trust, but that can be done without making it the trustee.

If the trust res will not support a bank as trustee, due to the high administrative overhead, consider a pooled accounts trust¹⁵. The parent or other care giver could have a hand in how the trust money is spent, but without the hassle.

Tax returns, investment decisions, and intricate rules about what is considered "income," would all be taken care of by the pooled trust administrator. Upon the parent's death, the pooled accounts trust would continue its work, and any money remaining after the beneficiary's death would be used to help other persons with disabilities in the pool.

Another possibility is a small stand-alone trust administered by a committee, to include a financial planner¹⁶ and one or two family members¹⁷. Several close relatives, working as a team, could likely keep each other on the straight and narrow. The financial member would chose sensible investments at a minimum fee. In case one of the team members dies, the others will be familiar with the beneficiary's needs and desires. They will be ready to step in without waiting to become acquainted with the beneficiary's unique personal characteristics. The remaining trustees could even select a replacement to join their trustee team. It may be beneficial to include a provision which allows a person to be appointed to break a "tie" should one arise.

How do the parents recognize a caring family member? Surprisingly, one of the chief characteristics of a suitable trustee is the person's willingness to speak out against the parents and argue with them about what is in Freddie's best interests. Suppose they have a niece, Janet, who sometimes makes suggestions about where Freddie ought to live, or how Freddie could make more friends. That type of interference is a sure sign that Janet genuinely cares about Freddie, to the point she is willing to speak up for him. As a trustee, she would be an ideal advocate, and she ought to have a say in the administration of his trust.

Certain non-relatives could be considered as candidates for the job of trustee, co-trustee, or advisor to the bank. The family pastor or rabbi. A special education teacher, or anyone else who works professionally with persons with disabilities.

In recruiting someone like Janet to serve as successor trustee, do not scare her away by suggesting that she will have to be his surrogate parent. Her job will be much more limited. She will not have to cook Freddie's dinner, but she may buy a microwave for his kitchen if he needs one.

Finding a trustee is not easy for most families. Anyone with a good heart, and who is responsible with money, has the basic qualifications. Once the new trustee is controlling the trust funds for the welfare of the beneficiary, the person with a disability will be light years ahead of his peers without a trust.

Next section: Residual beneficiary

Martha A Churchill
Milan, Michigan.

Patricia E. Kefalas Dudek
Royal Oak, Michigan.

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This page last updated Tuesday, September 30, 2008