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Some Issues to Consider when Naming a Successor Trustee

Posted on: February 2nd, 2015
Today many estate plans contain irrevocable trusts that will continue for the benefit of a surviving spouse's lifetime and then for the benefit of the next generation. Since these trusts are designed to span multiple decades, it is crucial to choose the right succession of trustees.

Should You Name Family Members as Your Successor Trustees?

Choosing the right succession of trustees for your irrevocable trust that is intended to continue for years is critical to its longevity and ultimate success.

Initially you may think that a family member, such as your spouse, a sibling, or an adult child, will be the best person to serve as your successor trustee. You may think family members will better understand the varying needs of your beneficiaries and keep the costs of administering the trust down, and you might be correct. 

But often family members may not be able to fulfill all of their fiduciary obligations without hiring legal, investment, and tax advisors. The expense of all these outside advisors will add up and can ultimately cost more than a corporate trustee, such as a bank or trust company. One advantage of a bank or trust company is that they can often meet all fiduciary obligations under one roof for one fee. 

Should You Give Your Beneficiaries the Power to Remove and Replace Trustees?

Forcing your trust beneficiaries to be stuck with the wrong trustee without a reasonable means for removing and replacing the trustees may cause an expensive visit to the courthouse.

It is necessary to build provisions into your trust agreement which will allow your beneficiaries or an independent third party, such as a trusted advisor or a trust protector, to remove and replace the trustees without court intervention. The fact that the trustee can be removed and replaced without going to court is often an incentive for the trustee to work out any differences with the beneficiaries.

What Should You Do?

Selecting a successor trustee is one of the most important decisions you will make when creating an irrevocable trust. While family members may be your initial choice, you should give serious consideration to designating a corporate trustee, either alone or as a co-trustee with a family member or trusted advisor.

A corporate trustee will act as a neutral party to oversee discretionary distributions and investment strategies that benefit both current and remainder beneficiaries. To create flexibility, specific beneficiaries (such as current income beneficiaries) or a trust protector should be given the right to remove the corporate trustee and replace it with another corporate trustee.

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