Selecting a Friend or Family Member as Trustee: Communication Is Key
Choosing your trustee is an important decision. If you select a friend or family member for this role, you are asking this person to take on the responsibility of ensuring that your instructions are carried out and your beneficiaries are taken care of according to your specific instructions. As a fiduciary, your trustee will be required to put the needs of the beneficiaries first in all decisions.
It is a big ask, and open communication is essential. Here are some key points to discuss so that your trustee can make an informed decision about accepting this important role:
Your Trust Goals
While a trust is basically an instruction manual for your trustee, an in-person conversation about your goals will help bring this instruction manual to life. Your potential trustee can talk through what if scenarios and ask specific questions. Your trustee should know if your main objective is to preserve the trust assets as long as possible or to liberally grant financial support to your beneficiaries regardless of spending down the trust assets. Are there existing or potential family conflicts that your trustee should be aware of? This discussion with your potential trustee may inspire a Memorandum of Intent or Dear Trustee Letter, which is a supplemental set of non-binding guidance you can provide to your trustee.
Resources Available to the Trustee
Will your potential trustee be comfortable handling the tax and accounting aspects of your trust? Have you left guidance on how to work with your tax advisor? Your potential trustee needs to know that experts will be available to them for any complex or high-value trust assets or any questions they might have.
Trustee’s Potential Liability
A trustee—particularly a friend or family member who is not acting in a professional capacity—is usually not held personally liable for their efforts except for gross negligence or an intentional violation of trust terms. Generally, the trust should include language about a trustee’s personal liability. This language will be important to review and discuss with your potential trustee, as well as the importance of this role and the implications.
Professional trustees are always compensated by the trust. However, a friend or family member serving as trustee may or may not be compensated. Some trustees may prefer not to be compensated; others may prefer or even need to be compensated for their time and effort due to the time and effort they will put in. If the trustee is also one of the beneficiaries, it may be appropriate to provide compensation to the beneficiary who is putting in the time and effort to administer the trust. Alternate compensation methods can be discussed with your estate planning attorney. It is important to talk about trustee compensation up front and the best way to fairly provide that compensation. In addition, the tax implications to them personally for any payments for providing this service should be discussed and decided upon.
Trustee Exit Plan
How does the trustee resign and how is a successor trustee put into place? Is the trustee’s term fixed or indefinite? Be sure your potential trustee understands the duration of the commitment as well as how to resign.
If, after discussion, your potential trustee accepts the role, you may want to let them read your trust document so that you can answer any additional questions. Knowing that you are both on the same page will bring both you and your trustee peace of mind. Some Estate Planning attorneys will offer a meeting with the trustee and yourself to answer any question that might arise before there is a need for their services.
Meet with a Virginia Estate Planning Attorney
Trustee selection is a vital task that we help our clients with as we design their estate plan. If you’re ready to begin the estate planning process with us, call Wilson Law PLC today at 866-603-5976 to set up a meeting or fill out our contact form and we’ll call you to schedule your meeting.