THE RETIREMENT CONCIERGE: CHOOSING A DISTANT TRUSTEE

By Sharon Hamilton

December 18, 2015 (San Diego) -- Dear SharonAnn:  My wife and I set up our family trust several years ago. We have two grown children and named them as successor co-trustees should we be unable to act. Some friends of ours did the same thing with their three adult children. We know them and their situations. One son lives in Perth, one son lives in Shanghai and their daughter lives in BoraBora and they all come home to visit about once every three years. I read something about the details of being a trustee and I’ve been telling them it is a bad idea. In fact it may even be a bad idea for us even though ours live in Key West, Florida and Marshall, Arkansas. What do you suggest?  Signed Perplexed.

Dear Perplexed,

You are right to be thinking about the problems of naming or being a distant trustee. There are hefty challenges. From having to find paperwork, emptying out a home, moving someone incapacitated and changing ownerships to become the successor trustee at times add up to hundreds of details. Being a trustee is a very large gift of service no matter who is handling your estate, even when they are paid a fee. It can also be a heavy burden for someone unprepared. Did you know that co-trustees are each held 100% responsible for the activities of the trust. So even if one child moves back home for the 6-12 months it might take to handle the estate, the absent trustees are equally, legally responsible. 

Trustees are personally responsible for several important duties: duty of loyalty - trust to be administered solely in the interest of the beneficiaries, duty of prudence - trustee held to an objective standard of care in managing the trust property, and subsidiary duties - impartiality among classes of beneficiaries, not to commingle trust property with trustee property and accounting to the beneficiaries. When you make your adult children your successor trustees they must agree together on the details. If they are far away, someone has to be onsite to physically oversee matters at home. If your successor trustees cannot be present they must hire a local person, often an attorney or a private trustee. 

In addition to joint accountability, what happens when co-trustees disagree? Sadly, if compromises cannot be made, both will hire an attorney for representation. Legal fees have been known to consume entire fortunes! So you, as grantor parents, just try to do the fair thing and name all children as co-trustees, never dreaming you could be laying the groundwork for a family war. No one will win!

From a logistic standpoint, trying to get signatures from co-trustees who live overseas, or even who live in the United States is time-consuming at best. Some forms require original signatures. That adds to Fedex or DHL’s bottom line [personal delivery service to and from overseas cities] but imagine, a form needs to be signed by all trustees. It would have to be sent from here to Perth, then to Shanghai and then to BoraBora then back to the States. Image opening a trust bank account, signed by trustees IF the bank even accepts non-residents to be co-trustees. It could all be an administrative nightmare!

A short list of details in trust administration: change the title of property to successor trustee names, open a new bank account with successor trustee names, change ownerships of investments assets into successor trustee names, pay bills, create accounting for all of the details and getting tax returns prepared. Potentially the trustees must empty the house and prepare it to be sold.  All of the papers in the house must be read to look for annuities and life insurance. Claims must be filed. This is known as gathering the assets. Once gathered, the trust dictates the terms of distribution. 

Some trusts have language that create a sub-trust, such as a special needs trust or a trust for a spendthrift adult child. The reasons are to preserve government benefits and to dole out the money over time so it will not be blown all at once, respectively. The attorney will create the trust but must be hired by the successor trustee to do so.

There are some alternatives to naming your children as successors: naming your attorney to administer the trust, hiring a corporate trust company, or finding a private trustee. There will be costs to the estate, but regardless of the costs, most parents would agree that not burdening their children and keeping peace in the family is worth it. After all, the goal of the trust is not about planning for your death, but planning for the best possible future for your children and grandchildren.

The Retirement Concierge offers family trust administration assistance as a team member of attorneys, trustees, and fiduciaries. We do not offer legal, financial or tax advice.  For a complimentary copy of What Everyone Should Know about Being a Trustee REPORT email: theretirementconcierge@gmail.com.