Choosing Trustees for Testamentary Trusts

Video

Hi folks, it’s Andy Stautz with Stautz Law. I am back for another general informational video about Indiana law. Today we’re talking about testamentary trusts, specifically your choice of trustee, choice of fiduciary for your testamentary trust.  

So I’ve recorded lots of talks about how testamentary trusts work, what they are, But basically, it’s a trust that you create in your will. So the trust doesn’t exist until the will is probated. Now all of a sudden, okay, we’ve got a trust.  

Why the Choice of Trustee Matters

Just like for any other trust, you need a trustee. That’s the person who is in charge of carrying out your instructions. And the choice of trustee is really important, really important, okay, because You can put any instructions you want in a trust, just about, I mean, you know, within reason, but you can get as creative as you want in the drafting. You can write any rules you want, you can make it complicated, you know, wish lists go crazy.  

But push comes to shove, a trust only actually works, you know, Legal validity aside, a trust only actually works, only does what you want it to do, if you’ve got a trustee who’s going to carry out your instructions. That’s just behavioral hard truth. I mean, you can’t make something happen unless the trustee does it for you.  

So you want to get it right. You want to choose a trustee who understands what the instructions are, and it’s going to carry them out and that you can count on.  

General Trend: Individual Fiduciaries

So the trend, and it’s been an ongoing trend since long before I was in practice, is to have like individuals, family members, friends, et cetera, serve as trustees. Okay, because I think this has to do with like bank consolidation and the loss of trust departments and increasing fees and requirements. So for many people with a small estate planning trust, right, they’re not going to have a big bank handling it for them. They’re going to name a family member or a friend.  

Considerations in Choosing Testamentary Trust Trustee

First Consideration: Can Your Trustee Do the Work?

And as we’ve discussed in the past, that introduces behavioral risks, right? Because you need to make sure your trustee knows how to do the actual work of being a trustee. like making accountings, keeping an inventory, reporting to the beneficiaries if they need to do that… actually can . . . has the financial and administrative savvy to carry out the trust instructions. 

Second Consideration: Trustee Conflicts?

The second point is, you need to make sure it’s someone whose interests align with your interests as regards to the trust. So you don’t want a situation where the trustee is tempted to co-mingle funds or to apply trust funds to benefit his or her own life, et cetera.  

And a common scenario here is, okay, what about the parent of a minor? If the parent of a minor is a trustee for that minor, they’re constantly going to be facing decisions like, okay, do I use my own money to pay for, childcare expenses, et cetera? Or can this be a trust distribution? Can I use trust money? And, that’s . . . maybe it doesn’t make a difference, right? But it’s something to think about. Do you want your trustee to be in a position where they make that choice or face that temptation?  

And so, especially for testamentary trust, where the trust doesn’t have any history or pattern, it just comes into being once you’re gone. You need to be especially sure that your trustee or the person you’re thinking about naming as a trustee is going to accept the appointment, is going to know what to do, and you know, isn’t going to face conflicted decisions often or all the time about how to follow your instructions.  

Conclusion: People and Values, not Hard Law

This is not a realm of legal certainty, right? This is a discussion about values and people, and it’s very case by case and specific. So I realized it was general talk, but it’s one of the things we’ll talk about if you come to me for your estate planning, and it’s one thing you should definitely be talking to, you know, any attorney about if you’re in a place where you’re making a testamentary trust or considering one.  

I hope that’s been a helpful overview. You’re on my website. Give me a call, give me an e-mail, and we’ll set up a time to talk about your specific facts. Hope that was helpful, and bye for now.