The selection of a trustee is one of the most important decisions a settlor can make. Revocable trusts are often established to avoid probate and conservatorship in case the settlor becomes mentally incompetent. However, incompetence can also become a problem with trustees who were at the height of their mental powers when the trust was established but now, 10 years later, show serious signs of forgetfulness, etc.
Therefore, it is very important to name a successor trustee or even a so-called trust protector who can make independent decisions about the removal or appointment of a trustee or successor trustee. Sometimes it may be valuable to appoint co-trustees but then it must be decided whether they can only make decisions unanimously or if there is some other procedure to resolve conflict.
Settlor as trustee
Often a revocable trust will have the settlor as a trustee. In this case selection of a trustee is obviously not a problem as it is predetermined. However, even here, consideration should be given to appoint co-trustees and successor trustees, so the court does not have to do so when the trust finds itself without a (competent) trustee.
Third-party as trustee
Here at several different options need to be considered. All of them have advantages in disadvantages which should be discussed with the estate and trust attorney.
Family members
Family members have distinct advantage this over professional outside trustees. Most importantly, they know the beneficiaries and the family dynamics. And a case of a support trust the also can gauge what the true needs of the beneficiary are better than most outside professional trustees could. However, family members must have the requisite knowledge or capacity to learn, attention to detail and sufficient time to do a good job as trust administrators.
Perhaps one of the biggest mistakes is the assumption that a family member will be content to do trust administration for no or only little remuneration. Given the complexities of the job and possible litigation exposure this is simply not fair.
Corporate trustees
Competency and professionalism are usually not a problem with corporate trustees. However, they may refuse to get into the weeds of family dynamics, avoid unpopular and potentially divisive decisions, or refuse to apply trust provisions which are ambiguous, for example, monitoring for ‘good citizenship’ of beneficiaries.
Moreover, the cost can be substantial. Nevertheless, there are also benefits which are not usually obtained with other trusty choices. For example, investment advice and management of what it often be rolled into the same trust administration fee.
Private professional fiduciaries
In California private professional fiduciaries must be licensed by the Professional Fiduciaries Bureau which regulates non-family member professional fiduciaries, including conservators, guardians, trustees, personal representatives of a decedent’s estate, and agents under durable power of attorney as defined by the Professional Fiduciaries Act. They must show 30 hours of professional education and pass a test.
Because the required educational requirements are limited there may be a wide spectrum of competence, and the suitability for one’s own family’s situation needs to be careful evaluated.
However, private professional fiduciaries may be a good choice when a non-family member fiduciary is preferable. They may be less expensive than corporate trustees. However, generally they will not be able to give independent investment advice and they would need to hire a professional investment advisor for this purpose and pass the cost on.
Trusted professional acquaintances
Elsewhere we have outlined why attorneys when rarely except the office of trustee, as opposed to legal counsel to a trustee. The main reason is that generally they are not allowed to charge for the considerable extra work trust administration entails. The same may apply to other professionals such as Chartered Public Accountants. Moreover, at least for attorneys, professional malpractice insurance does not typically cover errors and omissions for trust administration.
2023 brings a new alternative to conservatorship in California: Supported decision making
Should your lawyer be the fiduciary (trustee or administrator)?
