Guidance for Fiduciaries

Excerpt from ACTEC What It Means to be a Trustee:

CHOOSING TRUSTEES

At least one trustee must be named when a trust is established. That may be a qualified individual or an institution having trust powers under applicable law. Successors also may be named, in case the initial or prior trustee resigns or otherwise ceases to serve. Sometimes a trust instrument will describe a procedure by which successor trustees are to be selected.

The duties and responsibilities of a trustee are varied. Some consider it difficult for one individual to carry out all of the duties and responsibilities of a trustee; however, an individual trustee may, in most cases, engage the services of advisors to assist the trustee. The other option is to name a corporate trustee, intending that the corporate trustee would undertake all of the duties and responsibilities of a trustee itself, without delegating them. (References to a "person" in the following text will include corporate as well as individual trustees.)

What are the primary considerations in deciding whom to select to be trustee? Responsibility and Reliability. The trustee selected should be a person who can be relied upon to carry out his or her duties in a timely and responsible manner. If there is any question whether that will be difficult for that person to accomplish, then perhaps a co-trustee, with capabilities that complement those of the other trustee, should be considered.

Experience and Expertise. A candidate for trusteeship should have had experience as trustee or at least analogous experience. Is there particular expertise that the candidate would bring to the task, given the type of assets likely to be administered and the problems to be faced? What are the opinions of others who have dealt with the candidate in relevant circumstances?

Conflicts. Does the candidate occupy a position that might create conflicts of interest, real or imagined? For instance, is the person a family member who has problems dealing with other family members who will be beneficiaries? Is the person a co-owner or business partner in a business or entity that will have to be administered by that person as trustee? Would selecting a different person be more desirable in those cases?

Availability and Communication. Geographic proximity to the beneficiaries is usually desirable, but the technology now available reduces the impact of this factor. Nevertheless, a key consideration in selecting a trustee is the likelihood that the trustee will be available to the beneficiaries of the trust and will be a good communicator. A lack of communication skills or a reluctance of the trustee to be available to the beneficiaries may cause problems over the years.

Term of the Trust. How long a trust is anticipated to last may impact the choice of trustee. A person who is aging rapidly, has health problems, or is too busy, would generally not be a good candidate for a longterm trusteeship. Also, for longer duration trusts, a succession of trustees should be provided. A corporate trustee can usually be counted on to be available for the duration of a longer term trust.

Fees. It is generally understood that corporate trustees charge fees based on a percentage of the trust's income or principal, or both. In smaller trusts that can be expensive (especially where minimum fees are used). · Family members often serve without fees, or with relatively minor fees, but they usually need to hire and compensate investment advisors, accountants or attorneys to assist them in carrying out their duties. Generally, those fees can be negotiated, and may be payable out of trust assets if the trust instrument or local laws permit.

Summary. The various considerations above must be weighed in determining who would be best suited to act as trustee. There is not always a good or clear answer. Because the initial selection may not work out, it is advisable to build into the trust agreement a process for the trustee to resign or for the adult beneficiaries ( or some designated third party) to remove the trustee and, in either event, to appoint a successor trustee. Trusts are not static. The types of assets being administered, as well as other needs of the beneficiaries, are apt to change significantly over the years. In selecting a trustee one should anticipate the changing nature of the trust's assets and the changing composition of the group of beneficiaries as well.