A comprehensive estate plan will incorporate numerous estate planning tools and strategies into the overall plan. One of the most popular additions to a well thought out estate plan is a trust. If you choose to include a trust in your estate plan, you will need to decide who to trust with your trust administration. Choosing your Trustee is something you should do with care after giving the matter plenty of thought given the importance of the Trustee to the overall success of your trust.
What Type of Trust Are You Creating?
At its most basic, a trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor, who transfers property to a Trustee. The Trustee holds that property for the trust’s beneficiaries. A trust is created using a trust agreement. The trust agreement includes terms, created by the Settlor, that dictate how the trust is to be administered. A Settlor may include almost any terms he/she wishes and the Trustee must abide by those terms unless a term is illegal or unconscionable. All trusts fall into one of two broad categories – testamentary or living trusts. A testamentary trust does not activate until after the death of the Settlor, usually through a provision in the Settlor’s Will. A living trust, on the other hand, will activate during the Settlor’s lifetime once all elements of creation are in place. A living trust can be further divided into revocable and irrevocable living trusts whereas a testamentary trust is always revocable.
If you create a living trust, you may be able to appoint yourself as the Trustee initially; however, in the event of your death or disability, someone else will have to step into the role of Trustee. If you create a testamentary trust, you will already be gone when the trust takes effect, meaning someone else will administer the trust.
Choose Your Trustee Carefully
The overall job of a Trustee is to manage and invest trust assets and administer the trust according to the terms created by the Settlor. Given the fact that your Trustee may be managing the trust assets without court supervision it certainly is important to trust the person you appoint as Trustee; however, there are a number of other important considerations as well, such as:
- Does the individual have any legal education and/or experience? A trust is governed by both state and federal laws that your Trustee must understand. In addition, there are many legal concepts that will come up during the administration of your trust. Ideally, your Trustee will have a legal background that will help – or will retain an estate planning attorney.
- Does he/she have any financial education and/or experience? Part of trust administration is investing and managing trust assets. An error could cause the trust to fail and result in the loss of some, or even all, trust assets.
- Does he/she have the time to administer your trust? Trust administration can be time-consuming, depending on the size and complexity of the trust. Make sure your Trustee has that time available and is willing to give up that time.
- How close does the individual live to major trust assets? If your trust assets include real property that must be maintained and managed, it doesn’t make sense to appoint a Trustee who lives in another state, or even in another city unless absolutely necessary.
- Is the person willing to serve? Don’t make the mistake of assuming someone is willing to serve as your Trustee – ask them first. Keep in mind that this person will likely be serving during your incapacity or right after your death. If it is someone close to you, they may be grieving an unable to devote the time and attention necessary to act as your Trustee.
- Are there any obvious conflicts of interest? One of the strongest arguments for appointing a professional Trustee is the possibility of a conflict of interest that arises when you appoint a family member or close friend. When the Trustee has a pre-existing relationship with the trust beneficiaries it can create a conflict down the road, despite efforts to prevent one from occurring.
Contact Trust Administration Attorneys
Please feel free to download our FREE estate planning worksheet. If you have questions or concerns regarding trust administration, contact the experienced Illinois trust administration attorneys at Hedeker Law, Ltd. by calling (847) 913-5415 to schedule an appointment.