As I have stated numerous times, I am not an automatic proponent of creating trusts for people. I will tailor an estate plan for a client depending on the needs of the client. However, many times creating some form of trust is unnecessary. The basics of trusts can be found by clicking here.
One of the most important roles in the success of a trust is the trustee. Thus, making sure that the correct person is named trustee and that the trustee understands their role, responsibilities and whether a corporate trustee should also play a role in your trust is vital to ensure the settlor’s intent.
A trust divides property into beneficial and equitable/legal titles of the property. A trustee holds the legal title to trust property for another person, called a “beneficiary.” The trustee has a “fiduciary” role with respect to the beneficiaries of the trust. A trustee’s fiduciary responsibility means the trustee must take into account the needs of both the current beneficiaries and any “remaindermen” named to receive trust assets upon the death of those entitled to income or principal now. A remainderman is a person who inherits, or is entitled to inherit, property upon the termination of the estate of the former owner. Usually this occurs due to the death or termination of the former owner’s life estate, but this can also occur due to a specific notation in a trust passing ownership from one person to another.
As a fiduciary, the trustee will be held to a very high standard, meaning the trustee must pay even more attention to the trust investments and disbursements than the trustee would for trustee’s own accounts.
At the outset, most clients will start off naming themselves and possible their spouse as co-trustee. Normally, this does not create an issue. But, appointing a successor trustee, or the trustee that subsequently will take over for the client-trustee upon the client’s death or incapacity, can be a concern. In a similar vein, naming a co-trustee to act in conjunction with an elderly single client could also be an issue. The client should select the most appropriate person to be named the successor trustee, or co-trustee to ensure the settlor’s intent is fulfilled.
The question then becomes: who does the client-settlor rely on to implement the trust language into action? And I will get into that next time.