In 2005 a trust beneficiary filed a law suit against
her trustee (her father) claiming that her father
illegally transferred $2 billion of her money to a trust
for another beneficiary.
The case was settled for just under $1 billion.
Fact or Fiction?
In this case, fact.
The father and daughter in this story are members of
the Pritzker family (Hyatt Hotels, etc.) and while the
story involves famous people, it highlights the need for
care in choosing trustees for yourself and your loved
For those readers who already have a living trust, it
is likely that you are serving as your own trustee and
will continue in that role as long as you are willing and
able to do so.
But what if you are not serving or can’t serve?
Before we talk about how to choose the right trustee,
let’s talk about what a trustee does.
A trustee is the legal owner of assets held in trust.
When you establish a trust, you could choose to be the
trustee of your own trust while you are alive and able to
take care of your own finances.
Upon your death or in the event of your incapacity, a
“successor” trustee that you have previously chosen would
step in to take over control of the assets held in your
The trustee is required to use the assets only
for the benefit of the trust beneficiaries, who are
determined by you. In the event you are incapacitated and
still living, you would more than likely be the
beneficiary of the trust. If you are no longer living, the
beneficiaries receive your assets as described in the
The chosen trustee will have control over how the
assets are invested. They may also be responsible for
making distributions to the beneficiaries and ensuring
that tax returns and other filings are done correctly.
With that in mind, what should you look for in a trustee?
This is probably the most important consideration of
all. Your trustee must be trustworthy. If you pick someone
who can be trusted, you are at least half way home. Keep
in mind, not all trustees need to be related to you.
Ability to cooperate
In many cases you will choose to have more than one
trustee serving at a time. It is important that trustees
are willing and able to cooperate with each other in order
to fulfill the purpose of the trust. Someone who is
unwilling to listen and discuss issues honestly and openly
may be a bad choice for trustee.
Willingness to seek
In today’s world, a trustee needs to make decisions
involving accounting, investments, law, tax and other
areas. Being an expert in each of these areas is
just not possible. So a good trustee will seek advice from
other experts. Look for a person with a history of seeking
competent advice and making good decisions based on that
A good trustee will have (or hire) good administration
skills. They should either be good with details and
organization or have someone in their life that takes care
of the details for them. Finding someone that crosses
every “t” and dots every “i” is important.
A good trustee will have some financial experience.
They do not need to be expert investment managers, as that
skill can be purchased. What is important is for a trustee
to be able to listen to investment advice and be able to
determine when that advice is sound or not. The fiduciary
obligations required are a legal commitment to you and
Understanding of family history and culture
Depending on whether the trust is designed to be in
existence for a long period of time, this ability to know
the family, know how the matriarch and the patriarch
made their money and how they used it to raise their
children can be very important in carrying on that family
culture to future generations. A trustee should know about
your family’s values.
Ability to dedicate time
While a first choice for trustee might be one or more
of your children, you need to be realistic about how much
time each child can devote to trustee duties. Your
children may have young children of their own to raise and
they may have careers to pursue. They may have every trait
required of a good trustee, but for the fact that they
have little time to devote to the job. In these
situations, it is critical to have a discussion with them
before naming them as trustees.
Of course as your
children get older and their lives change, they may become
better suited to the job of trustee.
A trustee’s job involves some technical duties, such as
tax filing and accounting, but for the most part, it
requires decision making ability. You want someone who can
deal with issues on a practical level and someone who can
bring life experience to bear. What you don’t want is
someone who will spend $5,000 to get advice on a $1,000
Trustees have to be of legal age and sound mind in
order to serve as a trustee.
In some cases, you will want to make sure that your
trustee (or at least one of them) is a US citizen.
Naming a non-citizen as a trustee can create income tax
problems as well as estate tax problems. If you intend to
name a non-US citizen as a trustee, know that in most
cases, adding a US citizen as a co-trustee will solve
Airplane owners should know that in order to register
an airplane in the US, the FAA requires that the owner be
a US citizen. Likewise, if an airplane is owned by a trust
in the US, at least one of the trustees must be a US
Creating a trust in certain jurisdictions will require
you to have at least one trustee from that jurisdiction.
For example, trusts created in Alaska, South Dakota,
Nevada and Delaware (popular for asset protection and
dynasty trust planning) all require at least one trustee
to be a resident of the state.
While future health is not guaranteed, it best to pick
a trustee who is healthy today and who does not have a
history of serious health problems.
Any sustained inability to perform trust duties can
have a negative impact on the trust and the trust
A world view like yours?
Like health, world views can change. But if you have
specific ideas about how money should be managed or
distributed, choosing a trustee who shares your view is
one way to help ensure that the intent of the trust –your
intent- will be fulfilled.
Willingness to serve
Of course, it is important to pick a person who is
willing to perform the duties of trustee. In many cases,
you are not legally required to inform a person that you
have named them as your trustee, but it makes sense to do
so nonetheless. If for no other reason than to determine
that they agree to take on the responsibility.
Even the best laid plans can go wrong, but thinking
through how your trustees measure up will always give you
(and your trust) the best chance for success.
In a future article, we will look at the wisdom of
using multiple trustees, and the relative advantages of
using family members, friends, professionals and
institutions to serve as trustees.
Of course, if you would like to
talk about choosing trustees for you and your family,
here to have our office call to set up a time to
discuss this with you.
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