A trustee is one of the fiduciary roles in an estate plan. A trustee need not be a person either; a trustee can be an individual or an organization, depending on which fits the position best.
Trustees are charged with specific responsibilities. Beyond those responsibilities, discussed in more detail below, they have two primary duties. The first is a duty of care, and the second is a duty of loyalty.
A duty of care means trustees’ decisions must be well-researched and informed. Essential to their duty of loyalty is that they have no conflicts of interest; if they do, they must disclose them. Trustees also cannot use their role to their benefit. This transparency will help you understand any hidden motives or situations that could lead to conflicts in the future.
Given the importance of the trustee’s role in an estate plan, it is necessary to understand the responsibilities before choosing a trustee or accepting the obligation to become one.
What is a trust?
People set up trusts, legal entities that hold a portion or all of the trust owner’s property, for numerous reasons: to avert family conflict, to protect a loved one they want cared for in their absence, or to facilitate probate so that it is quicker and potentially less complicated.
With a trust, the property in it legally belongs to the trust, not the trust owner. Therefore, a trust, depending on its type, can protect property from probate.
What is a trustee?
When forming a trust, the owner must appoint a trustee and, preferably, a successor trustee in the event the first trustee is unable to fulfill their duties or doesn’t want to accept the position. These designations must be documented in writing.
A trustee is a fiduciary with the authority to oversee a trust’s assets. Essentially, the trustee is empowered to make investment decisions, ranging from selecting types of investments to determining their timing for purchase or sale. Depending on the terms of the trust, they may also be in charge of allocating assets for a minor or incapacitated individual’s well-being, education, maintenance, and support.
It is the responsibility of the trustee to disperse money to the trust’s beneficiaries from the trust. Beneficiaries can be anyone the trust owner chooses, from family members and friends to their favorite charities.
To hold the trustee accountable for all decision-making, the trustee typically must provide periodic accounting statements to the trust’s beneficiaries regarding the management of the trust.
Types of Trusts
There is more than one kind of trust. For example, two categories of living trusts exist: revocable living trusts and irrevocable living trusts. There are also testamentary trusts.
Revocable Living Trusts
With a revocable trust, a grantor can manage the trust’s assets during their lifetime as they wish. They can buy and sell assets, add or delete beneficiaries, or dissolve the trust. Once the grantor dies, however, the trust becomes irrevocable.
Revocable trusts are popular given the flexibility grantors maintain during life. Those who favor revocable trusts do so because they like knowing their money and other assets are available if they need to access them.
Those who create revocable trusts may also do so because they want to retain the option of making adjustments to it as time passes. For example, if their family grows, they may want to add a beneficiary, or if they have a falling out with a beneficiary, they may wish to remove them from the trust.
Unfortunately, it is not uncommon for family members to use a revocable trust to control beneficiaries. Bottom line: a revocable trust offers the grantor options.
Irrevocable Living Trusts
A grantor can also create an irrevocable trust during their lifetime. However, with an irrevocable trust, the grantor gives up all control over the trust’s management when they fund it. Because of this, an irrevocable trust’s grantor cannot serve as its trustee.
However, the grantor can name a trustee of their choosing. The trustee they choose will oversee the trust’s administration while the grantor is alive and after the grantor’s passing. Unlike a revocable trust, where a grantor maintains control over the trust’s assets and how they are used, with an irrevocable trust, the grantor may not remove any money or assets from it unless they made some provision for themselves to become a beneficiary of the trust before it went into effect.
Some states offer specific tax benefits for those who create an irrevocable living trust. Therefore, when deciding whether to form an irrevocable living trust, it is beneficial to consult with a Washington state tax professional familiar with Washington state tax laws to advise you. Our Seattle estate planning team has tax professionals we work with regularly who are well-versed in creating trusts to guide you.
Testamentary trusts, unlike living trusts, are included in a will. Some purposes of a testamentary trust include setting up provisions for minor children, those who are disabled, or those who, for whatever reason, may benefit from some oversight as beneficiaries.
A testamentary trust can include provisions preventing beneficiaries from receiving their inheritance at once. Instead, disbursements can be made at the ages or intervals the creator of the will designates. The trustee named in the will is responsible for enforcing any rules the will’s creator made concerning how the testamentary trust will be managed.
A testamentary trust does not exist during the creator’s lifetime; it becomes a legal entity only on death when the will goes into effect. Accordingly, a testamentary trust is revocable; the will’s creator can change it during their life since anyone can change their will at any time or delete provisions concerning a testamentary trust they had, at one time, created.
Unlike living trusts, the contents of testamentary trusts are subject to probate upon death. Following probate, the executor can transfer whatever assets and money were designated for the testamentary trust into it.
Qualities of a Trustee
To serve as a trustee, individuals must be at least 18 years old, of sound mind, and without convictions for felonies or crimes involving “moral turpitude” — offenses such as fraud that are considered immoral or unethical.
More than that, there are fundamental qualities that an individual in any fiduciary role should possess, irrespective of the specific fiduciary position they hold. Any fiduciary should be trustworthy and responsible so the will’s creator can rely on them to fulfill their wishes.
The person you choose to be a trustee should also demonstrate strong organizational skills, understand finance and investing, and be available and willing to take on the role. The process can be time-consuming, so you want to explain the role thoroughly so they understand it.
How to Choose a Trustee
When picking a fiduciary, choose someone unlikely to use their role for self-interest. Also, assess how well the fiduciaries you designate will work together to fulfill your wishes.
Considering these factors safeguards both your financial interests and the individuals you appoint. It also helps prevent potential legal issues for the designated individuals if they exhibit self-serving behavior or face conflicts of interest.
Find a Seattle estate planning attorney for help with trusts.
If you are still determining if you need a trust or whether certain friends and family members would make the best choice for a role as a trustee, talk to a Washington estate planning attorney.
An experienced estate planning attorney can help you decide how to structure your estate plan and whether a trust is appropriate, given your needs and objectives. They can also guide you on whether to appoint a person or an organization to a specific role and which is the best option.
When evaluating potential professionals or organizations to act as your trustee, consider those bound by fiduciary duty. This commitment indicates they are legally obligated to work in your best interest.
We at Elise Buie Family Law understand how complicated estate planning can be. Our Seattle estate planning team has vast experience creating estate plans, including trusts, and is here to assist you. Contact our Seattle office today.