Choosing The Wrong Successor Trustee Can Derail Your Final Wishes

Many estate plans contain revocable living trusts that will become irrevocable (cannot be easily changed or terminated) when the trustmaker dies. Such trusts may benefit the surviving spouse during their lifetime and may continue for the benefit of several additional generations. Because these trusts can be designed to span multiple decades, choosing the proper succession of trustees is crucial. Choosing the wrong successor trustee can lead to significant issues.

Does Your Chosen Successor Trustee Have to Act Right Away?

You will usually be the initial trustee when you create your revocable living trust. You will still manage your accounts and property as you see fit while you are alive and well, but the trust becomes the legal owner of those accounts and property instead of you as an individual. However, you will likely also be the beneficiary of the trust while you are alive and will benefit from the trust's accounts and property throughout your lifetime. With this arrangement, your selected successor trustee will not step in to manage your property unless you resign or desire someone to act as co-trustee with you, you become incapacitated (unable to manage your affairs), or you pass away.

Should You Name Family Members as Your Successor Trustees?

Your trust is intended to continue for years, so choosing the correct succession of trustees is critical to its longevity and ultimate success. Choosing the wrong successor trustee can greatly affect the trust’s future. The successor trustee you select could be the same person paying your bills if you are alive but incapacitated (your agent under your financial power of attorney), or they could be someone different.

You may assume that a family member, such as your spouse, a sibling, or an adult child, will be the best person to serve as the trustee of your trust when you are no longer able to serve. You may think family members will better understand the varying needs of your beneficiaries and keep the costs of administering the trust down. 

However, in reality, family members may not be able to fulfill all of their fiduciary obligations, either because they do not have the time or because they do not feel comfortable managing the trust's financial, legal, or distribution requirements. This is another consequence of choosing the wrong successor trustee. If family members are not the best option for your successor trustee, you may be able to choose a corporate or professional trustee. One advantage of selecting these types of trustees is that they can often meet all fiduciary obligations under one roof for a specified fee. In addition, a corporate or professional trustee will act unbiasedly when making distributions and investments, which will benefit current and future beneficiaries. This option can be beneficial if you have a blended family and would like to provide for your surviving spouse while having anything left over held for the benefit of your children from a prior relationship. In situations like this, you may not want your surviving spouse or child from a previous relationship to be in charge of managing the money because they could have conflicting priorities. Also, a corporate or professional trustee will not get sick or be too busy to oversee the trust's day-to-day administration.

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 them may cause an expensive visit to the courthouse.

It may be necessary to build provisions into your trust agreement allowing 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 often incentivizes the trustee to work out any differences with the beneficiaries. On the other hand, to prevent beneficiaries from removing trustees without valid cause, you might prefer to involve the court if a trustee needs to be removed.

What Should You Do? 

Selecting a successor trustee is one of the most critical decisions when creating a trust. Though family members or loved ones may be your initial choice, you should seriously consider designating a corporate or professional trustee alone or as a co-trustee with a loved one. Avoid the risks of choosing the wrong successor trustee in your planning.

If you have family members named as your successor trustees, Book a FREE Discovery Call to discuss your trustee options.