Selecting a Trustee an Important Trust-Formation Decision

New Yorkers thinking about setting up a trust have a number of considerations to think through. Perhaps one of the most important estate planning decisions when setting up a trust is who to name as the trustee.

A trustee has many duties. Among others, those duties include managing the trust's assets as well as making distributions to beneficiaries. To perform those duties, a trustee needs certain skills. For example, a trustee should have money management skills, some knowledge of the estate tax, and the ability to invest a large chunk of time into overseeing the trust. In addition to substantive knowledge, a trustee should have the ability to impartially carry out the trust's instructions.

Although those skills are necessary for any trustee, a person naming a trustee should ask three additional questions when deciding who to appoint as trustee. First, how complicated will the trust assets be? The larger and more complex the trust assets, the more likely a corporate trustee should be used.

Second, what kind of relationships do the beneficiaries have? If the beneficiaries have good relationships with each other, a corporate trustee may not be necessary. On the other hand, if the beneficiaries do not get along, a trustee's workload can grow significantly.

Third, would it be wise to have more than one trustee? For example, the trustee could appoint a close family member as the trustee, but also hire a professional to aid the trustee. According to some experts, in many cases, a hybrid approach offers the best of both worlds.

By preparing ahead of time, individuals can efficiently transfer their assets in a way that minimizes their tax burden while also avoiding probate administration.

Source: The Wall Street Journal, "A Matter of Trust," Jeanine Skowronski, Sept. 10, 2012

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