Industry Insight: Choosing successor trustee calls for careful consideration

Revocable trusts have become the primary vehicle for minimizing estate taxes and passing assets to loved ones without the necessity of probate.

While most people probably want to serve as trustee of their assets in trust for as long as they are able, the trust instrument must appoint a successor to act upon the owner's death or incapacity. Selecting a trustee is an important decision, and there are several factors that must be taken into consideration.

Look at who the beneficiaries are. If the owner of the assets has one child and all assets go to that child, it may be appropriate to appoint the child as successor trustee. If, however, the child is not of the age of majority, has a disability or lacks the experience to manage assets, another choice may be necessary. Also, note that if a beneficiary is disabled and receives public assistance from government programs, they may lose their eligibility if assets are left to them. In that case, the funds should be structured so as not to interfere with their ongoing support.

When there is more than one child, all can be named as successor co-trustees. But if they might have difficulty working together, consider naming a corporate trustee, such as a bank's trust department or an independent trust company.

It's also a good idea to look at when assets are to be distributed. If they are to be fully distributed at the owner's death, an individual might be able to administer the estate.

Keep in mind, however, that most people have some period of incapacity before death, and the successor trustee could be managing the trust for some time. If the person named is not financially astute, a corporate trustee may be a better choice.

When the assets are to remain in trust for the lifetime of a beneficiary, or until children or grandchildren reach a certain age, a corporate trustee may be needed to administer the trust.

Appointing a successor trustee also depends on what kinds of assets are in trusts. If assets are stocks and bonds, commercial property or business interests, naming a successor trustee who is competent and experienced in managing such a portfolio is crucial.

If the assets are mostly certificates of deposit, less expertise may be required.

Trustworthiness also should be considered. The successor trustee will be able to do with the assets, for the most part, anything that the owner could do with them. If the person proves to be untrustworthy, the trust could suffer a partial or total loss. A corporate trustee virtually eliminates that type of risk.

Just as making sure children are old enough to manage a trust is important, it's also a good idea to consider successor trustees' ages on the other end of the spectrum. While some people may wish to name a sibling or long-time friend as successor trustee, note that they could predecease the owner.

When naming natural persons as successor trustees, it is best to name a corporate trustee at the end of the line.

Although no trust will fail for lack of a trustee, naming a corporate trustee will avoid the need to go to court to have a trustee appointed if all natural persons are deceased or unable to serve as successor trustee for any reason.

Naming a successor trustee is a decision that requires the consideration of many different factors, each depending upon individual circumstances.

Be sure to discuss the options with your estate planner so your estate is properly administrated.[[In-content Ad]]