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Trust Law/Level II · Do you need one?/2.3 Choosing the people/Lesson 1

Choosing a trustee

What to look for in a trustee, the main kinds of trustee, and why to ask before you name anyone.

Education, not legal advice. Trust law changes from country to country and state to state, and the right structure depends on your situation. Anything you sign should be drafted or reviewed by a qualified lawyer where you live.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. Serve as your own trustee of a revocable trust: no fee and no change in daily control. Catch: name a successor and a backup, and do not be sole trustee and sole beneficiary of all interests, or the titles merge and the trust ends.
  2. Ask a capable family member or friend before naming them, since UTC §701 lets anyone decline; many serve unpaid or for reasonable pay under §708. Catch: a trustee-beneficiary may pay themselves only under an ascertainable standard such as health, education or support (§814).
  3. Let a family trustee hire professionals by the task, such as an accountant or investment adviser, paid as proper expenses from the trust. Catch: in England and Wales, a professional trustee owes a higher standard of care (Trustee Act 2000 s.1).
  4. Use a corporate trustee only where size, duration or family conflict justify an annual percentage fee with minimums. Catch: on a small trust the fee can take much of the income, so compare the written fee schedule with the expected return.
  5. With co-trustees, name an odd number or a tie-breaker; under UTC §703 they act by majority unless the terms differ, and two can deadlock. Catch: each co-trustee must take reasonable care to prevent another’s serious breach.

MaterialsA list of people or organisations who might serve as trusteeThe Uniform Trust Code, sections 701 to 704, 802 and 814 (free on the Uniform Law Commission website), or your own state’s or country’s trust lawA short note for each candidate: where they live, their likely availability over the years, and how organised they are with paperwork

Wonder

  1. Can I name a child who is currently too young to manage money?
  2. What happens if the person I name says no, or later wants to stop?
  3. How do professional trustees set their fees?

Explore

  1. A trustee holds legal title to trust property but must manage it for the beneficiaries, not for themselves. In common law countries such as England and the United States, this is a fiduciary role: the trustee owes duties of loyalty and care. A poor choice can mean lost money, family conflict or court cases. A trust does not usually end just because a trustee fails or leaves; under Uniform Trust Code (UTC) §704, a vacancy is filled by a named successor, by unanimous agreement of the qualified beneficiaries, or by a court.
  2. Useful qualities include honesty, organisation to keep records, time to deal with paperwork, enough financial sense to know when to get professional help, impartiality between beneficiaries, and the likelihood of being able to serve for as long as needed. A long trust for young children may outlast an older trustee, which is one reason trusts often name successors. Impartiality matters most when there are several beneficiaries: a trustee who favours one child over another can cause disputes and breach the duty to treat beneficiaries fairly.
  3. Family members and friends are common choices. They know the family and often serve for little or no pay, but may lack experience with investments, records or tax filings, and may feel pressure from relatives. Lay trustees can hire lawyers, accountants or investment advisers to help. In the US, a trustee generally needs legal capacity to hold and manage property, so a child who is still a minor is usually not a practical choice. Nobody is obliged to serve: under UTC §701, a person named as trustee may decline, which is one reason to ask before naming them.
  4. Professional trustees include individual professionals, such as some lawyers and accountants, and corporate trustees, such as banks and trust companies. A company does not fall ill or die, offers continuity and has experience, but it charges fees and may follow fixed procedures. Fees vary widely by provider, place and trust size, and for a small trust they can take a large share of the income. In England and Wales, the Trustee Act 2000 (section 1) expects a higher standard of care from a trustee acting in the course of a business or profession.
  5. Co-trustees share the job. Under UTC §703, co-trustees who cannot agree unanimously may act by majority decision, unless the trust terms say otherwise; with only two co-trustees, a disagreement can lead to deadlock. If one co-trustee leaves, the remaining co-trustees may act for the trust. Each co-trustee must take reasonable care to prevent another from committing a serious breach of trust, so going along without question is not safe. Some trusts pair a relative, who knows the family, with a professional, who handles the administration.
  6. A trustee is often also a beneficiary, such as a surviving spouse or adult child, and this is generally allowed. But it creates a conflict of interest, because decisions on distributions and investments can favour the trustee’s own share. Under UTC §802, a trustee must administer the trust solely in the beneficiaries’ interests. Under UTC §814, a trustee-beneficiary other than the settlor may make discretionary distributions to themselves only under an ascertainable standard, such as health, education or support. If one person is sole trustee and sole beneficiary of all present and future interests, the titles merge and the trust ends.

Key facts

  • A trustee holds legal title to trust property but must manage it for the beneficiaries, not for personal benefit.
  • Under Uniform Trust Code §701, a person named as trustee may decline the role; under §704, a vacancy is filled by a named successor, the qualified beneficiaries or a court.
  • Professional and corporate trustees charge fees that vary widely by provider, place and trust size.
  • Under Uniform Trust Code §703, co-trustees who cannot agree unanimously may act by majority decision, unless the trust terms say otherwise.
  • In the US, a trustee generally needs legal capacity to hold and manage property, so a minor is usually not a practical choice.
  • Under Uniform Trust Code §814, a trustee who is also a beneficiary (other than the settlor) may make discretionary distributions to themselves only under an ascertainable standard.

Exercise nine, six, three, one

9CollectList up to 9 people or organisations who could serve as trustee (most people have fewer), noting your relationship to each and one quality they have, such as ‘organised’, ‘lives nearby’ or ‘experienced with money’.
6ClusterSort them under the 6 qualities from this lesson (honesty, organisation, availability, financial sense, impartiality, longevity), placing each candidate under the quality they show most strongly.
3DistillReduce the list to 3 candidates who show the most of these qualities, and note any conflict of interest, such as also being a beneficiary.
1CrystallizeWrite 1 sentence on why your top candidate fits the role, and what you would want to ask them before naming them.

Fact check

Dates, figures and claims checked against the published sources listed below.

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