If you are in the process of creating or updating your estate plan, a crucial concern is deciding who will be in charge of distributing your assets. The executor of your will or trustee of your trusts has a vital role to play in ensuring your wishes are followed. Unfortunately, many people select their trustee and/or executor based on misconceptions and that can have significant ramifications for their estate plan and heirs.
When you are choosing a trustee and/or executor, you should avoid making these common mistakes:
Not having enough alternates
For married couples, each spouse typically chooses the other spouse as their trustee or executor. However, in the event your spouse predeceases you or becomes incapacitated, it is important to name an alternate in the will or trust. Ideally, you should have two alternates because you may forget to regularly revisit your estate plan and as you age, it is more likely that your spouse and alternate could die before you.
Choosing contemporaries
Often, people choose their siblings, friends, and colleagues as trustees and executors. These are the individuals they know best and trust to handle their affairs. However, it is likely that they are in the same age range. While selecting a contemporary as trustee or executor may be fine when you are relatively young, as you age, there is a greater likelihood that your pick may die or become incapacitated. It is a good idea to have one alternate person who is in a younger generation than you or at least in between your generation and your child’s. For instance, you may have a niece or nephew or other younger family member who may be appropriate or you could turn to one of your professional advisors.
Only considering someone who is good with money
Your trustee or executor does not need to have a financial background because they can hire someone with such expertise to help them. The most important skills of a good trustee or executor are common sense and good judgment. They must know when they need professional advice and be capable of hiring good people. In addition, your picks must understand your wishes and philosophy so they can step into your shoes and handle your affairs as you would.
Failing to consider potential family conflict
It is not unusual for a parent to set up trusts for their children and name each child trustee of another child’s trust. While this may seem like a good idea to avoid paying third-party trustee fees, it can lead to conflicts. Your children may disagree about when someone should get money from the trust and a dispute about money is necessarily going to affect the family relationship. The solution is twofold. If there is an ascertainable standard for making distributions, meaning that distributions can only be made to pay for the beneficiary’s health, education, maintenance, and support, the beneficiary can also be the trustee. However, for discretionary distributions, you must name an independent trustee to avoid conflicts and adverse tax consequences.
Selecting an appropriate trustee or executor is an important decision. An integral part of our work involves educating clients regarding the responsibilities their appointees will have and advising them regarding the criteria they should use in choosing someone to minimize the risk of future problems.
Contact us to discuss your estate plan. We can help you develop a plan or review your existing plan to ensure it is still appropriate for your needs.
