Considerations in Selecting a Trustee for Your Children’s Trusts
by Lynne Spangler, Esq.
McAndrews Law Offices, P.C.
Clients often include one or more trusts in their estate plans to insure that, if they pass prematurely, their assets are set aside to pay for their children’s health and education. A typical “minor’s trust” places the assets in a trustee’s care, and gives the trustee sole discretion to distribute the assets for a child’s health, education, maintenance and support until such child attains certain specified ages (i.e. 25 or 30).
During the estate planning phase, clients are asked who they want to name as trustee of these trusts. Young parents often provide a quick response along the lines of “my brother” or “my husband’s sister,” or even “my parents.” For many couples in their twenties and early thirties, the thought of them passing before their children are grown is unthinkable and therefore not much serious thought goes into choosing a trustee.
However, clients may want to give greater consideration to whom they will appoint in this very important role; if not initially, then at least the issue should be re-visited periodically as family and/or financial circumstances change.
This article highlights several factors that should be considered in choosing a trustee for one’s children.
Age of Named Trustee
Oftentimes, clients will name their own parents to serve as trustees of trusts for their minor children. However, unless a trust for a child is going to terminate upon the child attaining majority age (18 or 21 in most states), or the grandparents are very young, the client might want to reconsider who they have named as trustee.
Typically, clients want assets for their children to remain in trust at least until all of their children are old enough to have completed college. If a parent sets up such a trust for his 3 year old child and names the child’s seventy year old grandparent as trustee, it is not likely that the trustee will be able to manage the trust throughout the entire trust term, even if he lives that long. For this reason, the parents/clients should consider naming a younger trustee at the time the trust is signed. Alternatively, the trust can include a provisions whereby a successor trustee is named to serve when the first named trustee is no longer able to do so.
Significant Increase in Assets
As clients accumulate assets, they may want to give a second thought to whom is named as trustee under their estate planning documents.
If, during the initial estate planning phase, a client’s assets are sufficient to pay for the college tuition of his children and not much else, any minor’s trusts that may be established at the client’s death will likely be dissipated while the children are relatively young.
However, if the client experiences a significant increase in assets and realizes that his assets won’t be depleted by college tuition, not only might he want to extend the life of the trusts for his children, but he may want to reconsider who will serve as trustee.
In a common planning scenario for a client of significant wealth, the client’s Will might include a trust that gives the trustee full discretion to use the income and principal for a child’s health, education and support through the age of 25, with the child having the right to withdraw a portion of the remaining assets at certain set times. For example, a child may be given the right to withdraw one-third of the trust principal upon attaining each of ages 30, 35 and 40 years.
Other clients intend for these trusts to be used as a type of retirement or pension plan for their children, with assets being available throughout their children’s (and perhaps grandchildren’s)lifetimes.
In both of these situations, the trustee’s age is not the only consideration. The trustee of a trust that is intended to last beyond age 21, and especially one which is intended to last for the beneficiary’s lifetime should be able to balance the trustee’s duty to provide for the beneficiary’s needs with the client’s intention to have the assets invested for continued growth. This trustee will need to be much more sophisticated than someone who is simply doling out money for college.
A client might consider naming a corporate trustee to serve for these types of trusts.
Although the cost of naming a corporate trustee is greater than that of an individual, this would provide the greatest insurance that the trustee will “outlive” the trust term and will have the necessary investment expertise. A trust document should anticipate the merger or purchase of a corporate trustee so that the successor corporation is authorized to take over trusteeship.
Named Trustee Moves Out of State
Most trust documents allow a trustee to change the situs of the trust if the trustee lives in or moves to a state other than the state where the document was signed. If, for example, a child’s uncle is named as trustee at a time when the uncle lives in Pennsylvania, but he later retires to Florida, it may be more convenient for the trustee to move the trust situs and/or account to Florida and/or to have the assets managed by a Florida investment advisor. There is nothing inappropriate about making such a change. However, one must consider that state and/or local taxes on investments can vary significantly across the country. Thus, if the named trustee makes such a move while the client is still alive, the client may want to research the tax laws of the trustee’s new locale and consider whether it is necessary to name a new trustee or to direct that the trust situs and/or investment management must remain in Pennsylvania. Further, a trust document can provide the trustee with the right to resign if he relocates after the client’s death and to name another individual or corporation to serve if this would be in the best interest of the beneficiaries.
These and other factors may influence one’s choice of trustee, and clients should seek the advice of their estate planning attorney in making this decision. Regardless of how sure one might be when a plan is first drafted, a sound estate plan will allow as much flexibility as possible so that a client can reserve the right to change trustees or to name successors as situations may warrant.