Creating your trust comes with a crucial decision: choosing the trustee. At Applegate & Dillman Elder Law, we are here to help our clients understand how to set up and manage their trust, as well as help them choose the right trustee.
What is a trust?
A trust is a legal document that allows a third party, or trustee, to handle your assets in the event of death or incapacity. There are several different types of trusts, including a testamentary trust – which is created by your will and is non-existent until after death – and an inter vivos trust – which you can create now and exists during your lifetime. Those trusts can be revocable or irrevocable.
Wills and trusts have lots of similarities, but there are several differences as well.
Wills allow you to:
- Name control over children and pets
- Designate where your assets go
- Specify special arrangements
Trusts are a bit more complicated, but provide many benefits:
- You have greater control on when and how your assets are distributed
- You can apply to assets inside the Trust
- They come in many forms and types
Why should you set up a trust?
It is imperative to set up a trust to help manage your assets during your lifetime and after death. Trusts ensure that your beneficiaries receive your assets after death, assist you in caring for dependents, and make sure you get the help you need in case you become incapable of handling your trust’s assets.
Selecting a trustee
The trustee you appoint is responsible for managing the trust for the beneficiary or beneficiaries. You can choose a professional trust company, relative, friend or other person to manage your trust. Also, you can choose for the trustee to manage it now or in the future, depending on the type of trust you create.
The decision to appoint a trustee is not one to be taken lightly. There are many things to consider when making your decision:
If you choose a professional trust company, they will charge a fee or take a percentage of the trust’s value. While choosing a family member or friend to manage the trust may not require a fee, they may need to hire a professional to help them. You also need to decide whether to allocate money from the trust to pay the trustee for their time, even if its a friend or relative.
There is a lot of responsibility tied to a trustee since they have to decide how the assets are distributed to the beneficiaries. While some trusts may include detailed instructions on how the assets should be distributed, there will be times the trustee has to make their own decisions. It can be hard to make an objective decision when family members are involved. For example, a trustee might have to withhold funds from a family member but will fear it will become a point of tension in their relationship. When hiring a company, the corporate trustee will not have a special understanding of the family relationships but will have the ability to make an impartial decision.
Trusts can be complicated as there are many aspects to them, and there are a lot of decisions to be made. Choosing a family member or individual – someone with zero expertise – can lead to mistakes or mismanagement of the trust. These errors can lead to fines or even lawsuits. Choosing a professional mangement company means there are auditors who will ensure the companies are not making any mistakes or mismanaging the funds.
Whoever manages a trust must understand the time commitment that comes along with it. There are many duties that come with being a trustee, including:
- Filing income and estate tax returns
- Managing property
- Owning and selling real estate
- Keeping records of account activity
- Communicating with beneficiaries
Depending on the type of trust, and types of assets, trustees may have to spend a lot of time making important financial decisions and completing tasks. Make sure you choose someone who is responsible, committed, and reliable.
Fitting with the name, you must choose someone you can trust. The trustee will have control of your assets and will make important decisions on your behalf, so you want to have someone you feel comfortable and secure with handling this huge responsibility. While the trustee does not need to have legal or financial expertise, they should have good judgment, be financially stable themselves, and be willing to devote the time to managing these funds. You should also consider the trustee to be someone who will be around for a while. Choosing a company ensures trust officers will always be available to manage the trust, whereas an individual could lose the capability or die.
Still not sure who should be your trustee? We are here to help you. Contact us by phone or email today to discuss how our team can help you make the best decision when it comes to your trust.