Prior to joining Greenleaf Trust, I practiced law as an estate planning attorney. During this time, I navigated difficult conversations with many individuals planning for what would happen upon their passing. This is a difficult topic for many people, but it is a topic I think about often (perhaps a hazard of the industry). My daughter, Emery, is 2½ years old, but my husband and I will do everything in our power to make sure she isn’t left to deal with a headache when we pass away, which will hopefully be in a very long time. Some clients would come in ready to draft their estate plans but when you dug a bit deeper, they did not have particularly strong feelings about what would happen when they passed away, saying “I’ll be gone anyway!” Others put a lot of thought into making sure every little detail had been considered, leaving nothing to chance – they, like me, wanted to make sure their spouse, children, and/or other beneficiaries would not have to worry about anything; their estate would be administered smoothly.

More often than not, when asked about family dynamics – specifically whether any potential issues may arise, so many of our clients easily said “no, there will be no problems amongst my family members.” If only it were that easy! As with so many things in life, you never think it will happen to you, or your family, until it does…

Working as a trust relationship officer, I still have many of the same or similar conversations with clients. We work alongside our clients’ attorneys to ensure their estate plan is tailored to achieve their goals. We discuss whether clients would be up for acting as their spouse’s trustee when he or she passes away. This is a brutal (but necessary) situation to imagine yourself in – the loss of your spouse, who is very often your best friend, is devastating. It will be hard enough to navigate your way through your normal daily activities without the added new title of “trustee” and all of the fiduciary obligations, estate administration deadlines, and legal duties that come with it.

The same is true when you lose a sibling, parent, grandparent, or other loved one. Many of us need the time and space to grieve this loss. But what if the individual you are grieving named you to serve as their trustee? As George Bearup mentioned in his “Selecting the Wrong Trustee” article (Perspectives, July 2023), very often the default trustee is the spouse; followed by a child; or other close friend, relative, or advisor; which is often not the best choice.

So, what if you find yourself in this position? You are the Chosen One… or the One Who’s Been Chosen – you’ve been named by your loved one to act as their trustee, but you’ve never acted as a trustee before. When do you have to start acting? What if you aren’t ready to wrap your head around something new with so many legal and tax implications? Where would you even start?

Many would likely begin by contacting an estate planning attorney to help guide them through the process. You will also need to hire a CPA to assist with filing the final individual tax return as well as preparing the estate tax return. Acting as a trustee is not something to be taken lightly – trustees owe a fiduciary obligation to the trust itself and to all of the trust’s beneficiaries, meaning the trustee must act in their best interest. Trustees owe a duty of loyalty, a duty of impartiality, and a duty to exercise reasonable care to the trust beneficiaries. These duties can come with hidden conflicts of interest which the Settlor (the person who created the trust) may not have considered when they named you to act, especially if you are also a trust beneficiary. If there are multiple generations of trust beneficiaries, the situation can become even stickier for the trustee-beneficiary. How will the distributions you make to one beneficiary (or yourself) affect the other beneficiaries? Trustees are obligated to take this into consideration. Will the other beneficiaries (often family members) judge the distributions you make even if they are allowed by the terms of the trust? Their judgment may not matter if the distribution has been appropriately considered and documented but it may be difficult to navigate on a personal level.

Plus, many individuals are not familiar with basic trust provisions. What if a beneficiary wants a distribution to purchase vacation property? Let’s say the trust contains what is often referred to as “HEMS provisions” meaning the trustee may make discretionary distributions to the beneficiaries for their Health, Education, Maintenance, and Support. This is called an ascertainable standard which provides courts the authority to hold a trustee accountable for distributions which deviate from this standard. Make sense? Would a distribution to a beneficiary to purchase a vacation property be allowed under this provision? The answer may not be clear to someone who does not draft or administer trusts every day. What if you, as a trustee-beneficiary, need a distribution for something – are you comfortable making the distribution to yourself? Even if you are, have you sufficiently documented your reasoning for making the distribution in case it is questioned later?

What if the individual named to act as trustee didn’t know better (because they aren’t an attorney or trust officer) and they treated the trust as their own personal bank account? Some individuals think they are free to do whatever they want if they’re named trustee, ignoring the terms of the trust itself, but this is not the case. Trustees must always follow the terms of the trust and can be held liable for breaching their fiduciary duties and not following the trust document.

For our clients who would like to make sure every “i” is dotted and “t” is crossed when drafting their estate plans – let’s make sure careful consideration has been given to naming a successor trustee. Should it be their grieving spouse, child, or their friend who agrees to act as trustee as a favor and may know a thing or two about trusts – as Emery likes to say, “maybe no.”

Should adult children be named as the trustee? Here’s the typical attorney answer for you: it depends. Do you have an even or odd number of children? What is their relationship like? Can one or more of them be easily influenced by the other(s)? If you name them, can each act on their own or will action require a majority? Are they all local/easy to reach? Do they have the capacity/ability to take on the role of trustee? Are they organized and good with money? Do they have knowledge of taxes and investments? Can they review, interpret, and understand the trust provisions? There’s a lot to consider. Naming your children as a successor trustee may seem like the easy option but in many situations, it may not be.

Even if you are 100% convinced problems will not arise amongst your family, naming one of them to act as your trustee may be teeing up a perfect storm for problems to surface. Unfortunately, we see it time and time again. If one beneficiary thinks X should happen and another thinks it should be Y, things can change quickly.

What about naming an adult child to be the trustee of the child’s own irrevocable trust created upon your passing? Well, what’s the ultimate goal? Do you want to make sure the child only takes distributions for their health, education, maintenance, and support (or other specific situations)? Do you want to make sure the child’s assets are protected from creditors or divorce? Then, no, the child should not be named as the sole trustee of the trust created for their benefit. Perhaps consider naming an independent or corporate trustee to serve with them or as the sole trustee. If distribution decisions are not solely up to the adult child, the assets held in trust can remain protected.

The actual administration of the trusts is just as important as the drafting. Even well-drafted trusts can encounter problems if a trustee does or does not do something. The good news is a lot of potential conflicts can be avoided by naming an experienced trustee. Corporate trustees are in the business of trust administration and can take the burden from your loved ones during an already difficult time. Naming a corporate trustee can make the odds of an inter-family conflict lower, and who wouldn’t want to protect their family from more heartache? In the world of trust administration, does your spouse, child, and/or family friend want to be the chosen one? Again, “maybe no.”