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Choosing a trusteerequires a balance between family members and expertise.
The issue usually arises in the context of a testamentarytrust – those established under the provision of a will - or a life insurancetrust funded upon death of the Settlor (the person who established the trust).The Settlor has to select a successor trustee(s), who will assume the Settlor’srole as trustee after the Settlor dies. But the problem is more immediate whena Settlor is choosing trustees for an irrevocable trust funded during the Settlor’slifetime. One of the most challenging aspects of establishing an irrevocabletrust is the very personal decision about who will act as the trustee.
Many Settlors wish to only appoint family members and closefriends. In most cases these relatives and friends do not have the professionalexperience to manage a trust containing millions and for a lucky few billionsof dollars of corpus (property transferred to the trust). In these cases the Settlormay want to create a board composed of people with whom the Settlor was closeas well as people with the requite business and financial experience. Sometrust jurisdictions even permit different trustee to have differentresponsibilities; for example, one trustee may be designated to handleinvestments while another interacts with the beneficiaries and approves trust distributions.
Almost all Settlors fear the loss of control that’sinevitable when delegating such important decisions. That anxiety can bemitigated by trust language directing the trustees as to the Settlor’s wishes,or through a less formal “Letter of Wishes.” Unfortunately, this strategy maytie the trustees’ hands and prove counterproductive. And realistically youcannot draft clauses for every contingency, so it always comes back to selectinggood trustee(s). Another issue iswhether the person that you select as a trustee wish to serve in this capacity.While being asked to serve as someone’s trustee may initially feel like an honor,the role often involves a great deal of work with little or no compensation andthe risk of legal exposure. So Settlors must choose someone who understandsthese considerations and is willing to do it anyway – not someone who willresign as a trustee as soon as he is faced with the first complication.
The other alternative is to appoint a Trust Company as thetrustee. These experts have the training and knowledge necessary to serve; theyare regulated, and require a minimum amount of capital similar to a bank. Acorporate trustee can also hire other professionals such as lawyers,accountants and financial advisors to assist in meeting various fiduciaryobligations. They can be paid either from the trustee’s fee or, if the trustdocument permits, from the trust. Selecting trustees is complicated. But if youcare about your posthumous wishes being respected and beneficiaries treatedwell, it’s essential to do it right.