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Selection of Fiduciary

Selection of Fiduciary

Selecting trustees causes angst for many clients. Spouses, partners, adult children, and other family members generally are at the top of the list. Many attributes contribute to the success of administration. One attribute stands out for most-“trustworthiness.” The trustee can always hire paid professionals as a lawyer or accountant for assistance.

A client usually arrives at a selection in the planning process realizing a court would otherwise decide. Since a trustee may decline to serve, or unwilling to serve to due illness or other reasons, it is prudent to have a pool of several trustees to serve in succession, or jointly.

Spouse as Successor Trustee

The surviving spouse is the usual choice to serve as a trustee. The spouse may be best informed about assets to be administered. In addition, the spouse is most knowledgably about discretionary decisions to be made if the settlor is incapacitated. Marital harmony also plays a factor for most. However, the trust responsibilities may be overwhelming for a grieving spouse. Conflicts may also arise in second marriage situations where the fiduciary is called upon to make decisions regarding the administration and distribution of family assets to the fiduciary’s and the decedent spouse’s children.

The drafter must also remember that irrespective of a valid trust or intestacy, the surviving spouse may elect to receive one-third of the augmented estate if the decedent is survived by children or their descendants. The augment share increases to one-half if the decedent is not survived by children or their descendants. The surviving spouse is also entitled to interest on the amount to which he or she is entitled from the date of the decedent’s death until the date of satisfaction of the elective share.

Multiple Trustees

A rule of thumb is to have at least 2 successor trustees if a single trustee is serving under certain circumstances, generally for control [such as trust for adult child with addictions]. Provide the last successor trustee is authorized to appoint a successor trustee; the qualified beneficiary appoints a trustee, or a majority of the beneficiaries appoint a trustee.

The trust should expressly provide that any successor Trustee is not liable for any acts or omissions of any predecessor Trustee. Most trust companies will require this language and also a provision that states the successor is under no duty to ascertain whether any predecessor has properly carried out its duties. An alternative is to provide a court of competent jurisdiction will appoint the trustee when the trustworthiness factor is not found by the client with beneficiaries. A single trustee can make prompt and decisive decisions.
With some family dynamics, the client desire several trustees to serve at the same time. Co-trustees provide a check and balance in decisions making. The location of co-trustees in different cities is not a disqualifier with modern communications. Also, one trustee can 
delegate to the other authority to act on its behalf. The co-trustee has a fiduciary responsibility to participate in trustee’s functions.The disadvantage of co-trustees is that decision making could be paralyzed with disagreement. With two trustees, court guidance may be sought. This is avoidable by the trustee provisions in the trust vesting one co-fiduciary with the controlling vote in the event of a deadlock. Counsel must also consider adverse estate, gift, or income tax to the controlling fiduciary.

With more than two trustees, a majority of trustees rule absent different terms in the of the trust, controls trust decisions. 

A trust funded with significant property or overseeing an impaired beneficiary may justify a trustee committee. Some grantors prefer to have the committee comprised of family advisors, i.e. lawyer, accountant, financial advisor, social worker in case of impaired beneficiary. Unless a term negates compensation, all trustees are entitled to reasonable compensation and reimbursement of expenses.

Some schools of estate planners advocate multiple trustees for testamentary trusts, in which a spouse from a second marriage is the lifetime beneficiary. Elements of this school believe in multiple trustees whenever the Grantor is incapacitated or following the Grantor's death, particularly if there is an "interested Trustee" serving.

Another approach to protect testamentary funds for legacy to the deceased spouse blood line is to require a prenuptial agreement if the surviving spouse remarries. In addition, the grantor can limit the surviving spouse’s access to principal. A total return unitrust income trust balances the interest of both the lifetime and residuary beneficiaries in normal economic times. Total return unitrusts are governed by Va. Code § 55-277.4:1 et seq. 

Professional and Corporate Trustee

Lawyers and accountants are attractive potential trustees to clients. The client often has a preexisting professional relations and each professional understands the rigors of fiduciary duties. A group practice permits for continuation of the fiduciary status in the vent of disability or death of the professional.

Financial institutions trust departments offer perpetual lives. Trust officers will meet with counsel and client. Typically each financial institution has standard language for inclusion in the trustee powers. Professional and corporate trustee may be an attractive alternative where family members do not have the background necessary to complete the administrative requirements of the position.

The advantages of professional or corporate trustees over individual trusts are fiduciary experience in trust administration, business rather than emotional interest, and financial were to all to pay for breach of fiduciary duties. Query whether other traditional advantages of greater government supervision and investment performance records are neutral factors in the 2009 economic environment.

Disadvantages include turnover among trust officers and tendency to favor residuary.