Attributes of a Good Trustee Include:
- Availability and willingness to serve for
the whole term of the Trust: Here the debate often centers around individual versus
corporate trustees. Individuals may retire, take vacations, or be subject to a range of
human shortcomings. Corporate trustees have the advantage of perpetual existence. However,
corporations change over time as management or business emphasis changes or evolves
through mergers. The same organization that valued Trust business may change priorities so
that Trust management is no longer as important. A bank may merge and adopt different
Trust management principles. Even if the same legal entity is involved, there is no
guarantee that the actual individual(s) involved in management or even the principles of
Trust management will remain the same. Consider provisions giving the power to change
trustees.
- Integrity - a trustee must always act on
behalf of the Trust beneficiaries.
- Competence - a trustee must have the legal
capacity to contract, which prevents minors or legally incompetent adults from acting as
trustees.
- Decision-making ability - a trustee makes
many decisions, some of great significance, some that are difficult, some that will please
most, some that will not please many over a long period of time. The ideal trustee needs
maturity and wisdom to act effectively.
- Impartiality and absence of conflicts of
interest - there will certainly be difficult decisions to make during the term of a Trust.
Family member trustees may be placed in a position of making decisions that will favor one
relative and cause a feud with another. The strength of a family member trustee is their
knowledge of each of the beneficiaries. However, this knowledge can be a disadvantage if
the trustee is unable to be impartial. If the family member trustee is also a beneficiary,
the difficulties are even greater since others may perceive favoritism even when it does
not exist. An independent trustee is more likely to be impartial but conflicts of interest
can still occur especially around the issue of fees or representing one or more
beneficiaries in a Trust-related issue. Conflicts are inherent if a business associate is
named as trustee of if the trustee has another business relationship with the Trust or one
of its holdings.
Some of these issues can be anticipated,
but over the course of years or decades, unexpected issues will arise. Careful trustee
choices can minimize potential problems. Knowledge of and sensitivity to beneficiaries and
their needs and flexibility to meet changing circumstances are important attributes of a
good trustee. If flexibility in dealing with Trust beneficiaries and sensitivity to
changing needs is important, then an individual trustee is needed.
| We believe that a well
chosen individual trustee can provide a level of flexibility and sensitivity to the
grantor's original intent that a corporate trustee is not able to match. Much frustration
about Trusts is because a trustee can fulfill the terms of the Trust and the letter of the
law, but fail to meet the needs of those it was intended to serve. During the term of a
Trust there will be changes in the needs of beneficiaries and changes in tax laws, so
trustees must be prepared to adapt. |
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- Experience as a trustee - through
experience, a trustee learns to appreciate the complex laws involved in managing a Trust
and learns how to handle the difficult situations that arise in dealing with
beneficiaries.
- Tax neutral impact - there are important
income and tax consequences of powers held by trustees. Before naming a grantor or anyone
with an interest in the Trust as trustee, it is important to consider the consequences
with the lawyer drafting the Trust. Just one example is that if the grantor is named as
trustee and has the power to distribute income to himself, then he will be treated as the
owner of the Trust assets and thus be taxed on Trust income and have Trust assets excluded
in his estate. Powers that can cause tax impact include powers that affect income or
principal distributions; administrative powers such as buying life insurance, having the
power to purchase, exchange or borrow Trust assets, or voting the securities of a
controlled corporation; powers over Trust principal and powers to discharge legal
obligations. There are also state Trust laws in addition to federal laws to consider. If
state Trust law requirements are not followed, then the Trust may be invalid and provide
none of the intended benefits. This is because federal law recognizes a Trust as a
separate tax entity as long as the Trust is valid under state law.
continued: Requirements for
Effective Trust Management... |
