The question of whether you can serve as the trustee of your own trust is a common one, and the answer is generally yes, with caveats. Many individuals establishing a revocable living trust desire to maintain control over their assets, and serving as their own trustee allows them to do so during their lifetime. However, it’s crucial to understand the implications and potential drawbacks before making this decision, especially when considering long-term asset management and potential conflicts of interest. Approximately 60% of revocable living trusts have the grantor also acting as trustee, illustrating the popularity of maintaining control. Ted Cook, a Trust Attorney in San Diego, frequently advises clients on this very issue, emphasizing the importance of a clear understanding of fiduciary duties.
What are the responsibilities of a trustee?
As a trustee, you are legally obligated to act in the best interests of the beneficiaries, which initially might be yourself, but will eventually extend to your heirs. This involves prudent investment of assets, meticulous record-keeping, and adherence to the terms outlined in the trust document. A trustee must avoid self-dealing, meaning they cannot use trust assets for personal benefit, and must act with impartiality towards all beneficiaries. Failing to meet these fiduciary duties can lead to legal repercussions, including financial penalties and removal as trustee. Ted Cook often explains that while serving as your own trustee offers control, it also places a significant burden of responsibility on your shoulders. It’s important to have a successor trustee named as well, who can step in when you are no longer able to fulfill your role.
What are the benefits of being my own trustee?
The primary benefit of acting as your own trustee is maintaining control over your assets and how they are managed. This can be particularly appealing to individuals who have strong financial acumen and a clear vision for their estate. It also avoids the costs associated with hiring a professional trustee, such as banks or trust companies, which can charge substantial fees. Furthermore, you can make changes to the trust as your circumstances evolve, provided the trust document allows for it. However, it’s important to remember that maintaining control doesn’t necessarily equate to simplifying matters; in fact, it can add complexity, especially as your health declines. Ted Cook reminds clients that simplicity and clarity are often the keys to a successful estate plan.
What are the downsides to self-trusteeship?
One of the main downsides is the potential for conflicts of interest, even if unintentional. For example, if you are also a beneficiary, balancing your needs with those of other beneficiaries can be challenging. Another concern is the administrative burden. Managing assets, paying bills, filing taxes, and keeping accurate records can be time-consuming and complex. It’s important to ensure you have the capacity and willingness to handle these tasks effectively. Furthermore, a self-trustee may not be impartial in distributing assets according to the trust’s terms, potentially leading to disputes among beneficiaries. Approximately 30% of trust disputes involve allegations of self-dealing or mismanagement by the trustee, highlighting the importance of objectivity.
Can a successor trustee also be the beneficiary?
Yes, a successor trustee can also be a beneficiary, but it’s often not advisable. While it’s legally permissible, it creates a situation ripe for conflict, especially if there are multiple beneficiaries with differing interests. A neutral third party is generally preferred as a successor trustee to ensure impartial administration of the trust. They can act as an objective decision-maker, minimizing the risk of disputes and maximizing the benefits for all beneficiaries. Ted Cook frequently advises clients to choose a successor trustee who is financially savvy, trustworthy, and capable of handling the administrative responsibilities involved.
What happens if I become incapacitated?
This is a crucial consideration. If you are serving as your own trustee and become incapacitated, a successor trustee must step in to manage the trust assets. The trust document should clearly outline the process for determining incapacity and appointing a successor trustee. Without a clear plan, a court may need to intervene, leading to delays, expenses, and potential disputes. It’s essential to ensure the successor trustee is aware of their responsibilities and has access to all necessary documents and information. Ted Cook stresses the importance of having a durable power of attorney in place alongside a trust to address financial matters during incapacity.
I remember a client, Mr. Abernathy, who insisted on being his own trustee despite my warnings…
He was a successful businessman, fiercely independent and confident in his financial abilities. He created a complex trust, but failed to adequately document his investment strategies or designate a clear successor trustee. Several years later, Mr. Abernathy suffered a stroke and became incapacitated. His family discovered a mess – undocumented investments, unclear instructions, and a lengthy legal battle to determine who should manage the trust. It took months and considerable expense to sort things out, and his family endured a great deal of stress and emotional turmoil. The situation could have been avoided with proper planning and documentation. It was a painful lesson in the importance of seeking professional guidance and prioritizing clarity over control.
Thankfully, the Harrison family came to me after realizing their initial plan was flawed…
They had initially designated their eldest son as successor trustee, but he lacked financial expertise and was struggling to manage the trust assets after their mother’s passing. They came to me seeking guidance, and after careful consideration, we appointed a professional trust company as co-trustee to provide financial expertise and ensure the trust was managed effectively. The professional trust company worked collaboratively with the son, providing guidance and support, and ultimately, the trust assets were preserved and distributed according to the terms of the trust. The Harrison family was relieved and grateful that we had found a solution that protected their mother’s legacy. This situation underscored the importance of flexibility and being willing to adapt your plan as circumstances change.
What should I consider when choosing a successor trustee?
Selecting a suitable successor trustee is one of the most important decisions you’ll make when creating a trust. Consider their financial acumen, trustworthiness, organizational skills, and willingness to take on the responsibility. They should be someone you trust implicitly and who understands your wishes for the distribution of your assets. It’s also important to choose someone who is geographically convenient and available to handle the administrative tasks involved. Ted Cook recommends having an open conversation with your potential successor trustee to ensure they are comfortable with the role and willing to accept the responsibility. Remember, a well-chosen successor trustee can provide peace of mind, knowing your assets will be managed effectively and your wishes will be honored.
Who Is Ted Cook at Point Loma Estate Planning Law, APC.:
Point Loma Estate Planning Law, APC.2305 Historic Decatur Rd Suite 100, San Diego CA. 92106
(619) 550-7437
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