The moment you become a parent, estate planning takes on a heightened importance. Naturally, you want to make sure your child will be protected and financially secure in the event anything ever happens to you. Your minor child, however, cannot inherit directly from your estate. For most parents, the solution is to establish a trust to manage and protect a child’s inheritance until the child reaches the age of majority or the age at which you feel he or she will be able to effectively manage the inheritance. If you choose to create a trust, one of the most important decisions you will make is who should be in charge of your child’s inheritance trust. The decision is yours to make and the Oklahoma City trust attorneys at Parman & Easterday are here to offer you guidance when you are deciding who to appoint as Trustee of your child’s inheritance trust.
Trust and Trustee Basics
A trust is a legal relationship in which property is held by one party for the benefit of another party. The person who creates a trust is referred to as the “Settlor”, “Trustor” or “Grantor.” The Trustor transfers property to a Trustee, appointed by the Trustor. The Trustee holds that property for the trust’s beneficiaries, also named by the Trustor. The overall job of a Trustee is to protect and invest trust assets in accordance with the trust terms created by the Trustor. Among the varied duties and responsibilities of a Trustee are the following:
- Managing and protecting trust assets
- Abiding by the trust terms unless they are impossible, illegal, or unconscionable
- Investing trust funds using the “Prudent Investor Standard”
- Monitoring trust investments
- Communicating with trust beneficiaries
- Resolving conflicts among beneficiaries
- Making discretionary decisions
- Distributing trust funds to beneficiaries
- Approving or denying distributions if given discretionary authority
- Keeping detailed trust records
- Preparing and paying trust taxes
Is Your Spouse/Sibling/Best Friend Really the Best Choice for Trustee?
All too often, first-time Trustors appoint someone as the Trustee of a trust based solely on “trusting” that person and without knowing what skills are needed to fulfill the duties and responsibilities of the Trustee. Many spouses, friends and family members end up as Trustees without knowing anything about the job. Instead of simply appointing someone close to you because you trust them, take the time to consider who is best qualified for the job. To determine who that might be, ask yourself some questions, such as:
- Does the potential Trustee have any experience in the legal field? Many of the tasks of a Trustee involve understanding complex state and federal laws that apply to trusts. Ideally, your Trustee should have prior experience in the legal field or a working knowledge of the laws involved.
- How valuable or complex is your trust? A trust can be simple or complex. It can hold modest assets or a fortune in assets. The more valuable or complex your trust is, the more important it is to appoint a Trustee with a legal or financial background.
- Do you see potential conflicts between the potential Trustee and trust beneficiaries? Appointing a family member can create conflicts if the beneficiaries of the trust are also family members, particularly if the Trustee has discretionary powers under the terms of the trust.
- Does your potential Trustee have the time and availability to fulfill the role? This may seem obvious, but people often fail to discuss this appointment with their intended Trustee. When the time comes to administer the trust, the individual does not have the time, has moved away, or has personal or medical issues that prevent him or her from fulfilling these Trustee duties. Never assume anyone is willing and able to act as your Trustee.
Is a Professional Trustee a Better Choice?
It is often a good idea to consider appointing a professional Trustee in lieu of a spouse, family member, or friend. A professional Trustee will have more experience and knowledge about trust administration than a family member, is likely to be more objective when deciding if a request for a disbursement should be granted, may be called upon to resolve conflicts among family member beneficiaries, and is usually better suited to try to prevent conflicts in the first place. When the Trustee knows the beneficiaries on a personal level it can be more difficult to avoid or help resolve conflicts. Worse still, when the Trustee is close to the beneficiaries of the trust, the Trustee can be caught in a conflict of interest that threatens the success of the trust.
Contact Oklahoma City Trust Attorneys
For additional information, please join us for an upcoming FREE seminar. If you have additional questions or concerns regarding the choice of a Trustee in Oklahoma, contact the experienced Oklahoma City trust attorneys at Parman & Easterday by calling 405-843-6100 to schedule your appointment today.