Three things to remember when you appoint a trustee

When you write up your estate plan, you might want to create a trust. The shrewd use of trusts comes with some healthy benefits, such as certain tax advantages and the ability to bypass probate. But it also means appointing a good trustee.

Whoever you name as trustee will gain control of everything in the trust. The trustee can only manage the funds as the trust permits, but there’s a lot the trustee needs to understand. You want a trustee who can manage the duties and who may appreciate your family dynamics.

The trustee needs to be good with money

The document with which you create the trust will spell out many of the trustee’s specific duties. But, in general, the trustee will manage the trust’s assets and distribute its funds to the designated beneficiaries. Over the life of the trust, the trustee should:

  • Manage assets such as real estate, artwork and other property
  • Grow the principal through good investments and with an eye toward cash flow
  • Pay the trust’s bills and maintain its insurance
  • Maintain the trust’s financial records and file its taxes
  • Administer payments to—or on behalf of—the beneficiaries

This last point is particularly important. As others have noted, you can provide the trustee the authority to make payments like medical bills and tuition payments on behalf of a beneficiary, or you can have them give the funds directly to the beneficiaries. Some trusts may allow trustees to treat beneficiaries differently, so many people advise you to select a trustee who will understand and respect your family dynamics.

The trustee needs to consider family dynamics

Because you want your trustee to be trustworthy, you might appoint a family member. But this isn’t always the best path. In some cases, you may not find someone who is both capable and able to treat everyone fairly. A trustee can do real harm to the trust by investing poorly. But a trustee can also harm the trust by giving its beneficiaries the impression they’re not being treated fairly.

Accordingly, it’s not always best to appoint someone who may give the impression of favoritism. In addition to family members, you may consider:

  • An accountant, attorney or other trustworthy professional
  • A bank or corporate trustee
  • A combination of family member and accountant, attorney, bank or corporate trustee

Professional trustees may charge more than your family member might claim for administering the trust, but they often offset the extra costs with the value they bring in terms of knowledge and experience.

You want a trustee who shares your goals

The way you draft your trust may also impact your choice of trustee. You may get a better idea of whom to appoint when you review the trustee’s duties and freedoms with the attorney who helps you define them.