Choosing a Successor Trustee? Identify Someone You Trust

When their father died, Allison was surprised to learn that she had been named Successor Trustee of the family Trust. It seemed like a stretch—her brother, Oliver, was a banker, and her sister, Zoe, a lawyer. She, on the other hand, was a wife and mother with an unused elementary education degree. “Why would Dad name me Trustee?” Allison wondered. She had no qualifications and wouldn’t know a Trust from a greeting card. Both of her siblings were far more qualified for this role.

Their father had named Allison as the Trustee because he trusted her

Zoe and Oliver suggested that their father may have felt that Allison had the time to devote to the Trust’s administration and would rely on her siblings for help. But there was a likelier reason. “Allison was always Dad’s favorite. He trusted her. I am not sure he always trusted us.” Allison remained anxious about the new role that she had inherited. She had just started working as a substitute teacher and needed the money, with her kids headed off to college.

“As the administrator, you do get paid from the Trust.” Zoe told her. “Perhaps the fee will be sufficient to cover your lost income, and it’s not a full-time job, so you can still work. Track your hours and we can decide what’s reasonable.”

As usual, Allison was skeptical of advice from her brother and sister “Unfortunately, what may be reasonable to me may not be reasonable to you. I’m going to be facing a big learning curve, and to make this realistic, I need to be able to charge for the time that I spend researching and learning what I need to do. It might be more economical to just hire a professional.”

“Don’t do that,” Oliver said. “They’re expensive and that fee will eat into our income. Let’s agree on a reasonable hourly rate.” Allison promised to talk to her husband and make a decision that was right for her family. Her domineering siblings had always tried to interfere with her decisions and it clearly wasn’t going to stop with their father’s death. “I don’t want to get so bogged down with this that I can’t take care of my family and my job.”

When it comes to Trusts and inheritance, family conflicts have a way of surfacing

The selection of a Trustee is an important, and often difficult, decision. As the previous scenario illustrates, longtime family conflicts have a way of surfacing—especially when there’s money involved. Selecting a family member as Trustee can alleviate Trustee fees, if that person agrees to waive the right to be compensated.

But volatile family situations can make Trust administration difficult. While appointing a third party, such as a trusted friend, a financial adviser or a fiduciary may sustain a fee, it does circumvent family politics. If it’s a complex Trust, a professional trustee may be better qualified to administer it.

It’s a Trustee’s job to administer the Trust according to the instructions set forth in the legal document. They may include monitoring investments, assessing property and other resources, managing the sale of assets, paying taxes, making distributions to beneficiaries, complying with reporting and accounting requirements and responding to beneficiary requests for information. If the Trust is a simple one, these tasks can be managed fairly easily without a significant commitment of time. For more complex Trusts, however, settling the estate can become very time consuming.

Under California law, if a Trust does not specifically identify a fee for trust administration, a trustee is entitled to “reasonable compensation” that may be set by a probate court or the approval of the beneficiaries.

The Trustee’s fee is considered taxable income

Because the fee is taxable, a Trustee who is also a beneficiary may choose to waive payment of a Trust administration fee. An inheritance passed on through a Trust is generally tax-free. In addition, by waiving a fee, more resources remain in the Trust, gaining interest or otherwise accumulating value while the estate is being settled—and if it’s a complex estate, it can take a significant amount of time.

Trust administration requires careful documentation

Trust administration requires careful documentation. It means creating descriptions of tasks performed and saving receipts for administrative expenses. When it comes to naming a Successor Trustee, the primary consideration should be focused on that child, friend or professional who will ensure that the Trust is administered impartially for all, in accordance with the grantor’s instructions.

In our case, their father well may have appointed Allison for a very good reason. While he knew that Oliver and Zoe were far more qualified to be dealing with legal and financial records, he wasn’t convinced that they would be honest and impartial in distributing his estate among the three children. But he knew he could trust Allison to do what was right.

Is creating a Living Trust one of your plans for the New Year? Contact California Document Preparers at one of our three Bay Area offices today to schedule an appointment. We’re helpful, compassionate and affordable.