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As we approach mid-February, many of us might be feeling the pressure to start working on one of the goals we set for our new year: Getting estate plans done to better protect those they love.
The urgency to get this accomplished can be especially difficult and forces us to ask tricky, fraught questions. This could include, “Is my spouse really the best person to manage the trusts I establish for our children?”
Roles matter
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This all sounds pretty cut-and-dried — except for the fact that you’re no longer here and have to believe that your wishes will be obeyed when you’re gone.
Managing trust assets can include investing as well as distributing assets to beneficiaries. The law requires a trustee to follow the terms of the documents.
What should you look for in a trustee? Is your spouse — no matter how much you love that person — the best at meeting these qualities?
Financial acumen. Part of the role of a trustee is to manage the assets. The trustee should understand investments and their relative performances, whether he or she manages the assets or hires a third party to do it.
Organizational and record-keeping skills. The trustee needs to keep track of assets held in the trust, as well as any distributions. Is your trustee candidate organized?
Communication. Beneficiaries must be kept informed about trust administration and provided accounting results.
Integrity. The role of trustee requires a high standard of care and sense of duty to the beneficiaries. You want someone with strong moral principles.
Time and availability. Depending on size and complexity, the trustee’s role could be minimal or more significant depending on how much attention the trust assets require and the needs of the beneficiaries.
Understanding you. The trust itself will contain documentation about your wishes, but it won’t be able to spell out every situation and contain what your intent would be as decisions arise.
Willingness to take on responsibility. Since the role of trustee is not insignificant, the trustee must be willing and able to take on this role.
Location. In our virtual world, location may seem somewhat less important, because we can easily transact business over the phone or internet. But there is something to be said for proximity to beneficiaries to better understand their needs and circumstances.
Age. Age plays a role because a trustee is legally required to be 18 or older. You also want to ensure the individual is mature enough to manage the assets and have the judgement required to make important decisions.
On the other hand, older trustees might not outlive a trust’s duration, depending on the beneficiaries’ ages and/or the purpose of the trust.
These are hard questions, increasing the importance of getting outside advice. An adviser who’s done this kind of work can serve as an important moderator for difficult questions and scenarios — made even more tricky by the fact that you’re acknowledging mortality in these discussions, which makes them potentially emotional.
Charting a course
Once you know which characteristics are most important in a trustee, you can begin to look at potential candidates:
Benefits and drawbacks of a spouse to play this role:
Benefits:
- Privacy and control. Can manage affairs privately, maintaining family discretion
- Familiarity. They know the child(ren), their personalities and their needs the best
- Continuity. Not introducing someone new to the child or situation at the passing of the spouse, which is already a lot of change.
- Understands your intent/wishes. Likely to manage the trust in a way that aligns with your values and intentions
- Time. Willingness to dedicate time
- Cost effective. May waive or charge minimal fees for administration
Risks:
- Experience gap. There’s no guarantee the individual has the technical skills needed to fulfill the role: financial acumen, bookkeeping, etc.
- Conflict risk. Complex family situations (e.g. stepchildren, blended families) might warrant independent oversight to prevent disputes or perceived inequities.
- Unnecessary tensions. Could create a stressful dynamic between the surviving spouse and the children, particularly as they become adults.
Luckily, there isn’t a single solution, and who you name can change over time as the dynamics of the situation change (such as everyone getting older).
Creating strategies
There are plenty of ways to create a trust structure that will help alleviate tension and make all parties feel invested in the planning and administration of your assets.
Create co-trustees. Combine a family member or friend for personal insight with a professional. As child beneficiaries get more mature, consider having them become co-trustees of their own trusts to create buy-in of trust structure and benefit, ownership and encourage financial education.
Name viable successors. As the initial trustee no longer makes sense because of changing factors (e.g. age, time, location, etc.) have a logical successor already named to step into the role.
Organize. Consider structuring your trust to divide responsibilities and roles:
- Administrative trustee. For bookkeeping, tax filing, etc.
- Distribution adviser. To determine how much and for what purposes.
- Investment adviser. To manage and preserve the trust’s assets.
- Professional/corporate trustee. To provide continuity and professional oversight.
- Individual trustee. To provide familial insight and be able to remove or replace a professional.
- Trust protector. To provide oversight and administrative safeguards, ensuring the trustee acts according to the trust’s intent
None of these decisions or discussions are easy. However, we have found that once they begin, they become progressively easier.
Determining who should be the trustee of a trust for your children ultimately depends on your personal facts and circumstances.
Naming a spouse as trustee can leverage their insight and commitment to your vision for your/their children and can also create cost efficiencies and continuity.
But if you’re concerned about drawbacks, don’t be afraid to think about alternate and complementary tactics to reduce your apprehensions and make these decisions more about partnerships and less about traditional roles and thinking.
