January Series: Five Mistakes Successor Trustees Make (and How to Prevent Them)

When establishing a trust, you must give serious thought to who you choose as your successor trustee—the person who will manage, invest, and hand out the trust’s accounts and property once you are no longer able to do so. This individual ideally should be

● someone you trust implicitly;

● someone who is organized, responsible, transparent, and meticulous; and

● someone who can remain steadfast to your wishes in the face of family disagreements and other disputes regarding the trust.

Even the most capable, well-intentioned successor trustees can make mistakes when managing affairs, however. Here are five surprisingly common mistakes along with steps to take to prevent them from happening.

To ensure that a trust fulfills its purpose without being contested, the trustee must keep accurate, detailed records of income and distributions. Your trustee must also be prepared to report these figures regularly to the beneficiaries and heirs. If these records are incomplete or inaccurate, the door is open for someone to challenge the trustee, potentially leading to lengthy and costly court battles.

To prevent this mistake: Hire an accountant to assist the successor trustee in record-keeping, and make sure the successor trustee and the accountant meet before the successor trustee takes over.

Many trustees mistakenly assume their job involves acting in the best interests of the person who set up the trust. In reality, their job is to act in the interests of the beneficiaries of the trust. The trustee may be legally liable for failure to protect the beneficiaries against bad investment advice concerning the trust.

To prevent this mistake: Detail the fiduciary role of the successor trustee in the trust document and be certain that the successor trustee understands the role.

The successor trustee’s failure to effectively communicate with key members of your financial team while administering your trust can lead to inaccuracies, misunderstandings, and significant, preventable, financial losses.

To prevent this mistake: Make sure your successor trustee is properly introduced to, and connected with, your attorney, certified public accountant, financial planner, and anyone else involved with your estate planning.

If your appointed successor trustee is a close friend or family member, the topic of financial compensation may be glossed over or forgotten. This oversight can result in a lack of morale or even resentment if managing the trust becomes too difficult or time consuming for the trustee.

To prevent this mistake: Bring up the topic of compensation yourself when you establish the arrangement, be as generous as you deem necessary, and put the compensation terms in writing.

Many people choose a close family member as a trustee. This strategy can be appropriate, especially when privacy matters. However, disputes about money can happen even in the tightest-knit families, and it can be difficult for a relative to remain neutral when resolving those fights. The end result could be decisions that family members perceive to be unfair or that are inconsistent with your intentions.

To prevent this mistake: Make certain the person you choose can remain neutral and faithful to the terms of the trust, even under duress. If there is any doubt, consider hiring a corporate trustee with no emotional connection to the family or your accounts and property.

Selecting a successor trustee is one of the most important decisions you will make during your estate planning process. For insightful counsel on this issue, contact us today to schedule a private appointment. Call us at (480) 699-7992.