14 Aug Why Naming Co-Trustees for Your Trust Might Not Be The Best Solution
When setting up a trust, selecting the right trustee is a crucial decision. A trustee is responsible for managing the trust assets and ensuring they are distributed according to your wishes. One common consideration is whether to appoint one trustee or multiple co-trustees. When clients have multiple children, I often find they want to name both or all children as co-trustees, because they fear what it will “look like” to their children if they choose one for that role over another. The choice of a trustee role is in no way an expression of your feelings about that child or children. I advise my clients to think about who is the best suited for the role, and often encourage single successor trustees with backups. There is a number of reason for this, which I have outlined in this blog. Continue to read to learn more.
While naming co-trustees may seem like a good idea for checks and balances, it can also create several potential issues. Here’s why having co-trustees might not be the best solution for your trust.
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Potential for Conflict
One of the main reasons to avoid naming co-trustees is the potential for conflict. Co-trustees must work together to make decisions about the trust, which can be challenging if they have differing opinions or priorities. Disagreements between co-trustees can lead to delays in decision-making, legal disputes, and increased costs for the trust. Even if the co-trustees generally get along, the stress and pressure of managing a trust can strain relationships.
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Decision-Making Challenges
When co-trustees cannot agree, the trust’s administration can become paralyzed. Some trusts require unanimous consent from all co-trustees for any decision, while others allow for a majority vote. However, both scenarios can lead to complications. Unanimous consent can create a stalemate if one trustee consistently disagrees, while a majority vote can leave the dissenting trustee feeling marginalized or overridden.
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Inefficiency and Delays
The process of managing a trust with co-trustees can be less efficient than with a single trustee, which is usually the opposite result of what people envision when they decide to create a trust . Each trustee may have their own way of doing things, and coordinating schedules and decisions can be time-consuming. This can result in delays in managing trust assets or distributing funds to beneficiaries. In some cases, beneficiaries may suffer financially while waiting for the co-trustees to resolve their differences.
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Increased Costs
Having multiple trustees can increase the costs associated with managing the trust. If you are paying trustees fees and if the co-trustees disagree and require legal assistance to resolve their disputes, the legal fees can quickly add up. These costs are ultimately paid from the trust assets, reducing the amount available to beneficiaries.
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Complexity in Administration
The logistics of administering a trust with co-trustees can be complex. Trusts often require that all trustees sign off on certain actions, such as buying or selling assets, making distributions, or entering into contracts. This can be particularly problematic if the co-trustees live in different locations or have different availability. Managing these logistics can be cumbersome and add unnecessary complexity to the trust administration process.
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Difficulty in Removing a Trustee
If one of the co-trustees is not fulfilling their duties or is causing problems, it can be difficult to remove them, and will certainly cause family rifts.
Alternatives to Co-Trustees
If you are considering co-trustees but are concerned about the potential drawbacks, there are alternatives to explore:
- Single Trustee with Successor Trustees: You can name a single trustee with one or more successor trustees who will take over if the original trustee is unable or unwilling to serve. I’m a big proponent of having multiple backup trustees!
- Trust Protector: A trust protector is a third party who can oversee the trustee and step in to make changes or resolve disputes if necessary.
- Corporate Successor Trustee: If you are uncertain about appointing family members, you may want to consider a corporate successor trustee/trust company to fill that role.
Conclusion
While naming co-trustees for your trust may seem like a way to ensure fairness and accountability, it can also introduce significant challenges. Before deciding on co-trustees, carefully consider the potential for conflict, inefficiency, and increased costs. By understanding the risks and exploring alternative options, you can create a trust structure that best meets your needs and protects your beneficiaries’ interests. Let’s talk about what works for your particular needs and goals. jamie@jmillerlawfirmpllc.com; 918-938-1322
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