Professional trustees may be individuals such as attorneys or accountants who routinely serve in a trustee capacity for their clients, or entities such as banks or trust companies.
Professional trustee likely going to be the better option in most cases, especially if its a complicated trust.
Selecting the wrong trustee is easily the biggest blunder parents can make when setting up a trust fund. As estate planning attorneys, we've seen first-hand how this critical error undermines so many parents' good intentions.
All in the family
In most instances, clients select family member trustees for both emotional and financial reasons. Clients may believe that a family member will have an emotional attachment to the beneficiary of the trust and as trustee will stick with the job, come what may.
Anyone 16 and over (18 for an Unincorporated Association or Charitable Trust) who is not 'disqualified' can be a Trustee. The reasons for disqualification were set down by the Charities Act 2011, and were designed to prevent people convicted of financial crimes, or who made serious financial errors, becoming trustees.
Generally speaking, once a trust becomes irrevocable, the trustee is entirely in control of the trust assets and the donor has no further rights to the assets and may not be a beneficiary or serve as a trustee.
Trusts offer amazing benefits, but they also come with potential downsides like loss of control, limited access to assets, costs, and recordkeeping difficulties.
There is no minimum
You can create a trust with any amount of assets, as long as they have some value and can be transferred to the trust. However, just because you can doesn't necessarily mean you should. Trusts can be complicated.
There are a variety of assets that you cannot or should not place in a living trust. These include: Retirement accounts. Accounts such as a 401(k), IRA, 403(b) and certain qualified annuities should not be transferred into your living trust.
The trustee manages the trust and distributes its assets at a prescribed time. The trustee is in charge of managing the assets in an irrevocable trust while the grantor is still alive.
It is not unusual for the successor trustee of a trust to also be a beneficiary of the same trust. This is because settlors often name trusted family members or friends to both manage their trust and inherit from it. Naming the same person as trustee and beneficiary can be problematic.
While there's no limit to how many trustees one trust can have, it might be beneficial to keep the number low. Here are a few reasons why: Potential disagreements among trustees. The more trustees you name, the greater the chance they'll have different ideas about how your trust should be managed.
The one establishing a trust is called the trustor or grantor. The one who oversees and manages the trust is called the trustee. In a revocable trust, the trustor may control the trust as well, but in an irrevocable trust, the trustee must be somebody else.
The trustee generally has the authority to withdraw money from a trust to cover the cost of third-party professionals, as well as any other expenses arising as a result of administration.
Trust checking accounts let trustees conduct transactions efficiently without needing outside funds while making it easy to track the financial activities related to the trust.
Establishing and maintaining a trust can be complex and expensive. Trusts require legal expertise to draft, and ongoing management by a trustee may involve administrative fees. Additionally, some trusts require regular tax filings, adding to the overall cost.
At the end of the payment term, the remainder of the trust passes to 1 or more qualified U.S. charitable organizations. The remainder donated to charity must be at least 10% of the initial net fair market value of all property placed in the trust.
Many advisors and attorneys recommend a $100K minimum net worth for a living trust.
Creating a trust to avoid probate may not be beneficial and more expensive than it's worth to create and manage if the value of an estate isn't significant or assets are limited.
Disadvantages of Family Trusts
If you continue to treat the assets as your own, any trust could be open to challenge as a sham. Additional administration – If you establish a trust, you need to allow for the time and cost involved with meeting the trust's annual accounting and administrative requirements.
Your Assets Might Not Be Protected: Another crucial point to note is that not all trusts offer protection from creditors. For instance, in revocable trusts, the assets are not protected from creditors as the grantor retains control of the assets. Potential Tax Burdens: Finally, trusts can carry potential tax burdens.
While trustees may temporarily be able to delay trust distributions if a valid reason exists for them doing so, they are rarely entitled to hold trust assets indefinitely or refuse beneficiaries the gifts they were left through the trust.
2. Deeper Family Knowledge: People often choose a family member as trustee as a way to “keep it in the family.” They assume that the person they select has insights into family dynamics that will enable them to anticipate issues, navigate personalities, and generally keep the peace.
California Probate Code Section 16012
It provides that, if a trust has more than one trustee, each trustee has the duty to: (1) participate in the administration of the trust; and (2) take reasonable steps to prevent a co-trustee that from committing a breach of trust.