When setting up an estate plan, one of the toughest decisions to make is who to leave in charge.
Who do you choose to be trustee? Power of attorney? Who will make health care decisions for you?
For those lucky enough to have trusted family members willing and able to step in, the choice is easy and obvious. But what if you don’t have trusted family members or perhaps any family members? Who do you choose then?
Who to trust as trustee
It’s important to know that the successor trustee of your trust — that is, the person who manages your assets in the event of your incapacity or death — does not have to be a relative. It can be a friend, a corporate trustee (such as a bank trust department), or a licensed professional.
Choosing a friend
If your trust assets are not particularly valuable or complicated, a trusted friend may be a suitable trustee. Their job will be to manage your assets and pay your bills in the event of your incapacity.
In the event of your death, they are tasked with marshalling your assets, selling what needs to be sold, and distributing the assets to the parties you’ve named in the percentages you’ve stated.
Generally, they would be assisted by a trust attorney of their choosing. There is paperwork, as well as legal liability for failing to properly perform the trustee duties, so you’ll want to make certain your chosen friend is willing and able to take on the responsibility.
Corporate trustee
If you don’t have such a trusted friend who could serve, or your estate is large, has complicated assets (for example, a business, property in another state, valuable art work or other specialized assets), or if you intend for your trust to continue on for several years or indefinitely after your passing, you may want to consider a corporate trustee.
Many national banks have trust departments that can serve as trustees, and there are trust companies specifically engaged in the business of serving as trustees.
The upside is that they have the experience necessary, there is no issue with a successor trustee not surviving you, and they can generally handle a variety of assets.
The downside is that, of course, they charge for this service (1 to 2 percent of the value of the assets managed annually is typical) and most have minimum asset values required for them to accept the trusteeship, and that can run from $500,000 to $5 million.
Be sure to discuss with any corporate trustee you are considering: a) what their fees are; b) whether they will accept the type of assets you have, or will they sell them off; c) what minimum asset value is required; and d) whether any specific language should be included in your trust.
Professional fiduciaries
If you don’t want to or can’t choose a family member, a friend or a corporate trustee, or even if you could but you’d like another option, consider a professional fiduciary.
A professional fiduciary is licensed and regulated by the state of California. In addition, they must follow a strict code of ethics, take courses required by the state licensing bureau, pass a lengthy exam, attend continuing education, have a clean background check and be bondable.
Professional fiduciaries are responsible for the actions of anyone they hire to assist with managing a client’s needs, such as investment companies, gardeners or Realtors. The professional fiduciary may be surcharged by the probate court for client losses resulting from improper management.
Professional fiduciaries also charge for their services, so be sure to ask about their fee structure, what their succession plan is if they cannot serve, and whether they handle the types of assets you have.
You can search for a professional fiduciary on the Professional Fiduciary Association of California website at pfac-pro.org.
Who will act for you?
Who you name to act as your power of attorney and healthcare agent in the event of your incapacity is a very personal decision. This may be an area where a trusted friend would be a good choice.
I have several clients who have agreed with a friend that they will each serve for the other if needed. This is not a place for a corporate trustee — they’re not going to take it on unless they are also managing the assets, and even then the answer may be “no.”
Besides that, the individual assigned to your matter by the corporate trustee (typically a bank officer), may not be anyone you’ve ever met, thus making it unlikely they’ll know what decisions you’d like made on your behalf.
A professional fiduciary may be the answer here, but please be sure you’ve reached out and spoken with that person before naming them in your documents.
Who gets your stuff?
Finally, if you don’t have any close family members, or don’t have family members you want receiving your estate, it’s important to get an estate plan in place.
Without a will or trust in place, your estate will be distributed in a probate proceeding to your “next of kin” pursuant to the intestacy laws of California.
This may mean your estate winds up with distant cousins you’ve never met and may never have known even existed. Instead, by putting an estate plan in place, you can leave your assets to friends, colleagues, or, even better, your favorite charities.
Sometimes your friends become your family. But sometimes, you might need a professional to act where friends or family are not an option. Either way, you’re not alone.
Teresa J. Rhyne is an attorney practicing estate planning and trust administration in Riverside and Paso Robles. You can reach her at Teresa@trlawgroup.net