When establishing a trust, you must give serious thought to who you choose as your successor which is the person who will manage, invest, and hand out the trust’s accounts and property once you are no longer able to do so. This individual ideally should be
- someone you trust absolutely;
- someone who is organized, responsible, transparent; and
- someone who can remain steadfast to your wishes in the family disagreements and other fights regarding the trust.
Even the most capable successor trustees can make mistakes when managing affairs. Here are five surprisingly common mistakes with steps to take to prevent them from happening.
1. Faulty Record-Keeping
To ensure that a trust fulfills its purpose without having issues, the trustee must keep detailed records of income and distributions. Your trustee must also be prepared to report these figures regularly to the heir. If these records are inaccurate, the door is open for others to challenge the trustee that will potentially lead to costly court fights.
To prevent this mistake: Hire an accountant to assist the successor trustee in record-keeping, and make sure the successor trustee and the accountant meet before the trustee takes over.
2. Misunderstanding the Fiduciary Role
Many trustees mistakenly assume their job involves acting in the interests of the person who set up the trust. In reality, their job is to act in the interests of the beneficiaries of the trust. The trustee may be legally liable for failure to protect the beneficiaries against bad advice concerning the trust.
To prevent this mistake: Detail the fiduciary role of the successor trustee in the trust document and be sure that the successor trustee understands the role.
3. Not Collaborating with Your Financial Team
If the successor trustee fails to communicate with members of your financial team while organizing your trust can lead to misunderstandings and financial losses.
To prevent this mistake: Make sure your successor trustee is properly introduced to and connected with your attorney, certified public accountant, financial planner, and anyone else involved with your estate planning.
4. Failure to Discuss Compensation
If your appointed successor trustee is a close friend or family member, the topic of compensation may be forgotten. This oversight can result in a lack of morale or even resentment if managing the trust becomes too difficult for the trustee.
To prevent this mistake: Bring up the topic of compensation when you establish the arrangement, be as generous as you need, and put the compensation terms in writing.
5. Failure to Remain Objective
Many people choose a close family member as a trustee. This strategy can be good, especially when privacy matters. However, fights about money can happen even in the closest families. It can be difficult for a relative to remain neutral when resolving those fights. The end result could be decisions that family members feel unfair or that are inconsistent with your intentions.
To prevent this mistake: Make sure the person you choose can remain faithful to the terms of the trust. If there is doubt, consider hiring a corporate trustee with no emotional connection to the family, your accounts, and property.
Selecting a successor trustee is one of the most important decisions you will make during your estate planning process. For insightful counsel on this issue, contact The KC Estate Planner today to schedule a private appointment. We are available for in-person or virtual appointments, whichever you prefer.