A question that I get asked at least once a month is “Who should be the Trustee of a (or my) Trust?” There are many different schools of thought on this, but I have found that there is a relatively simple way to break this down that will avoid “paralysis by analysis.”
“Independent” vs. “Interested” Trustees
First, here is a quick lesson on the lingo:
Often times an “Interested” Trustee is a Trustee that it related or subordinate to the grantor within the meaning of Section 672(c) of the Internal Revenue Code. To illustrate by example, the following are considered “related or subordinate” – a spouse living with the grantor, a father, mother, son, daughter, brother, or sister, or an employee of a business over which the grantor has substantial control. (Note: this is not an all-inclusive list.)
An “Independent” Trustee is generally a Trustee that is not “related or subordinate” to the grantor.
The next question that often comes up is whether or not an Independent Trustee should be utilized. The following are some of the top reasons (in no particular order) why an Independent Trustee might be utilized:
- Objective decision-making may be more likely
- Professional service may end up reducing costs if problems arise
- Conflicts amongst beneficiaries may be reduced
- An otherwise busy family member does not have to take on the liability
- Beneficiaries may not have the characteristics or skills necessary to take on the responsibility
Regardless of whether an Independent Trustee or an Interested Trustee is utilized, a great degree of care should go into identifying the appropriate Trustee to do the job so as to avoid potential problems down the line.
Click here for more general information on estate planning.