As we have discussed previously, having a good trust that has been properly funded can make or break your estate plan. However, a trust is only as good as its Trustee. While not everyone is lucky enough to have a lawyer or a financial planner in the family, there are some qualities that you should look for in considering who to appoint as a Trustee after you have become disabled or have passed away.
What might be most important is that you need someone who understands and appreciates the fiduciary duty they have been bestowed with. This simply means that they have an obligation to act in the best interest of the trust’s beneficiaries, be it the grantor while they are disabled or the children receiving their inheritance by way of the trust. In NC, the first fiduciary duty is to act in accordance with the Principal’s (Grantor’s) wishes as set out in the trust. A good trustee must be able to act impartially in cases where there is family strife and understand when that may not be possible for them.
The Trustee should be honest and reliable. Trust administration can involve a lot of deadlines and transferring funds, and if you have family members who depend on their distributions, you want to be sure the Trustee will have things done on time. Everyone has those people who they know are good people, but can’t get anywhere on time—that’s not what you want in a Trustee.
While it isn’t a requirement for your Trustee to be a financial professional, a good sense of money management can go a long way for your Trustee. A significant portion of the administration is likely be investing trust assets, to ensure that the corpus of the trust can grow and continue to benefit the beneficiaries. Having a Trustee with good money management skills can lead to the trust benefiting multiple generations, while poor financial decisions could result in the funds being squandered during your disability.
Tied in with money management is your need for someone who is trustworthy as a Trustee. It can be tempting, especially for those managing large trust accounts, to take large fees or use the funds in ways that could directly benefit the Trustee. The person you appoint should be someone whom you have absolute confidence that you can trust to handle your assets properly, whether they have someone watching over them or not.
In addition to all of these qualities, it can be beneficial to have someone as a Trustee who has no conflicting interest—someone uninvolved with the family. Sometimes this can be a corporate entity or just a CPA or attorney that you have used for years and understands your financial situation. This would allow for a certain level of impartiality that a family member cannot achieve. Going this route can have its disadvantages, as there will be higher costs and professionals will be less familiar with the Grantor or beneficiaries, resulting in smaller or less frequent distributions.
In some instances, a professional Trustee may be necessary, such as when a beneficiary is disabled and receiving needs-based benefits. A distribution made for the wrong thing or at the wrong time can severely impact those benefits, so having a Trustee who is experienced in administering trusts for special needs can be advantageous. It also relieves the family members responsible for their care of the additional stress that can come from managing the disabled beneficiary’s trust share.
Ultimately, there are a lot of factors at work in trust administration and you want to be sure that your Trustee is capable of handling them all in a manner consistent with your wishes. Naming an individual or an entity as a Trustee is an important decision that you should not make lightly. If you need help naming a Trustee for your trust, or are having difficulties acting as a Trustee, call W.G. Alexander & Associates at 919-256-7000 to schedule a consultation with one of our attorneys.