Trustee Part VI…Having Co-Trustees Might Not be a Great Idea

For the last several posts on the Trustee, I have been teasing out why it might not be advisable to appoint or name co-Trustees to your trust, and more importantly, successor co-Trustees once you have passed away. The last several posts in this series related to trustee qualities, picking a trustee, powers, responsibilities, and more responsibilities.

There are practical and reasons to limit the management of your trust to one individual. But, this issue is not limited just to the role of successor co-Trustee but also includes other fiduciary roles like the co-Personal Representative, co-Agent or co-Guardian.

The first reason is basic efficiency. One fiduciary can control the comings and goings of trust much easier than two or more people given most fiduciaries are endowed with the ability to delegate their authority to agents. Having two people in the same role means the potential for duplicative work. Or, it could mean trustee work  is not done because one fiduciary believes the other fiduciary is taking care of the issue while the other fiduciary believes the first fiduciary is handling the issue. This also does not ignore the likely need to have meetings between the fiduciaries to work out any details or discuss the issues to ensure the trust is being managed properly. That means the trustees will be paid for their time.

A second practical reason is that there could be a disagreement between the co-Trustees on an important trust management issue.  Maybe, one Trustee believes a beneficiary should get a loan to start a business. But, the other Trustee thinks that is would be a waste of trust assets because the beneficiary has a poor business model. Or, is simple a dumb business.  The disagreement only becomes more accentuated if the co-Trustees are also beneficiaries and the co-Trustee/beneficiary is the one asking for the money to start the business. If the trust does not have explicit instructions to break the disagreement, a court  might be called in to determine the issue. That means the trust will have to spend assets on professional and legal advice which translates into trust assets not being spent on the beneficiaries.

Another example of where appointing co-fiduciaries is extremely unwise is for co-agents to make healthcare decisions. More times than not, a conflict will surface. If you have had a stroke and become incapacitated, your healthcare agent steps-in and makes healthcare decisions for you. However, if two people are appointed with the same powers to make medical decisions, they could disagree on treatment. One agent might want the doctors to do everything possible to keep you alive; the other agent might see the hopelessness of recovery and only want the doctors to take palliative care steps. Wash, rinse, spin and a litigation can occur or at the very least ill feelings between the co-Agents.

The other main reason is the legal concerns of appointing two people. Co-Trustees will be liable for actions of the other co-Trustee. There are some exemptions to co-Trustee liability there are not many because of a trustee’s fiduciary role. In other words, if one co-Trustee acts negligently or willfully with respect to management of trust, the other co-Trustee can also be sued and be personally liable.

Naturally, everyone’s life situation is different. But, when drafting a trust and there is a desire to name more than one successor trustee, you should think twice on the practical and legal reasons to name only one person the trustee.

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About Chris Guest

I am a trust and estate planning attorney working in the Washington, DC metro area. I offer comprehensive estate planning, trust administration, probate services and general business counseling for accountants, attorneys, business owners, consultants, federal and local government employees, retirees, other business professionals and other individuals.
This entry was posted in Estate Litigation, Estate Planning, Revocable Living Trusts, Trustee, Trusts. Bookmark the permalink.

7 Responses to Trustee Part VI…Having Co-Trustees Might Not be a Great Idea

  1. Pingback: The Role and Responsibilities of the Individual Trustee

  2. marilyn saivetz says:

    are your statements referring only to successor co-trustees or co-trustees also? thanks.

    • Chris Guest says:

      Barring some statement in the trust documents that would restrict actions by a successor co-trustee, generally, successor trustees (or co-trustee) step into the shoes of the trustee/co-trustee and have the same, duties, liability, etc. that the trustee/co-trustee had. A successor trustee/co-trustee wouldn’t be liable for actions that took place prior to that person becoming successor trustee/co-trustee but would be liable moving forward from the date of appointment.

  3. If the current sole trustee is found to have mis-managing funds,with stated plans to continue, would a co-trustee be warranted?

    • Chris Guest says:

      Depends on the type of mismanagement conducted by the sole trustee. Simply, making bad investment choices wouldn’t be enough. And, if the mismanagement was significant the trustee could be removed or a co-trustee could also be appointed.

  4. joel says:

    Lets say one co trustee wants to sell a property but needs the approval of the other co trustee. The second co trustee refuses to agree unless they recieve a portion of the trust before they will release thier approval. Is this extortion. To add, if the property is not sold all propeties will be liquidated to pay the debt of the trust.

    • Chris Guest says:

      You need to speak with an attorney. But, the trust document should have information on how to deal with a stalemate between the co-Trustees. More than likely you will have to go to court to settle the issue.

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