Many, although I’m not sure that it’s most, parents of minor children doing their estate planning the first time come in with the notion that the guardians and trustees should be the same people. There are reasons this approach is a starting point for some — they usually see the personal care and the management of resources as part of a unified parenting role. Indeed, the parents are filling both roles for their children. However, there is no legal reason that “guardian” and “trustee” appointments must be identical. So how do parents of minor children best approach this challenge (with a greater focus here on trustees)?
First, who should have the primary caregiver role should be decided. I submit that this decision should be made independent of decisions regarding the financial management of any inheritance left behind. By that I mean that who your children would go to live with and be raised by is a much more important decision than who your money goes to live with. That’s not to say that how the guardians approach financial matters is irrelevant — far from it. But, developing your children into full adults is a much deeper, critical role than managing money.
Second, in deciding upon a trustee or co-trustees, parents should be mindful of the various tasks that are part of the office of trustee: investment management, distributions, tax compliance, communication regarding trust matters, financial mentoring, coordinating efforts with the guardians, etc. While one party can fill all of these roles, co-trustees could be selected with differing skillsets in the various components of the trustee role and/or portions can be outsourced. For instance, choosing “cousin Joe” might be appropriate for distribution planning, financial mentoring and coordinating efforts with the guardians, but outsourcing the investment management and tax compliance to appropriate professionals would be better than leaving such matters to Joe. Perhaps the trust document should reflect this division of duties by granting specific tasks and responsibilities to each individual or institution that should be involved.
A quick aside on multi-role trustee appointments: It may be impractical to have a multi-layered trustee office if there are insufficient assets to justify the involvement of multiple parties. You may also find resistance among estate planning attorneys to draft custom-tailored trustee structures. It’s much more common to have a simple discussion and appoint a single individual or institution than to get into a fuller discussion about the various facets and dynamics that may be in play. While that resistance may suggest you are not working with the right attorney, you may be able to work with him or her effectively if there is a single carve-out that can easily be dropped into the document. For instance, you may wish to appoint (and provide compensation for) a financial mentor within the family but otherwise delegate the trustee role to a trust institution. That type of structure is not complicated to draft at all, and can generally be implemented without objection by most attorneys.
Third, checks and balances should be considered. If there are multiple trustees, consider whether a majority rule is sufficient or if one party’s point of view should carry the day if there is disagreement. Should someone have the ability to remove and replace the named trustee under certain (or any) circumstances? Should the beneficiary have that right when of sufficient age or maturity? Should a supervisor trustee be appointed to deal with such matters or ineffectiveness of the trustee(s)?
Fourth, give due consideration to what resources should be available to the guardians from the trust. This will be explored more deeply in a later post, but will the guardians require resources to provide a proper home environment for the additional children under their care? Should a stipend be offered to offset any financial hardships or to acknowledge the guardians’ service? What, if anything, might need to be repaid by the guardians for any incidental financial benefit they might receive from such assistance?
Of course, working through the above four layers of the decision will necessarily lead to additional topics and questions. Do any specific ones come to mind for you?
Posts in the Who Should Be Trustee? series are: