Episode 38: Who Should Be the Trustee of the Family Trust?

Estate Planning Lawyer, Peter Klenk

Who Should Be the Trustee of the Family Trust?

Hi, everybody. It’s Peter Klenk. Klenk Law here to talk about death and taxes and all the things that you love to talk about all the time. Today’s subject is who should serve as the trustee of your family trust. It’s a good question.

Now, I’m assuming at this point, you listen to my other podcast and you know what a family trust is. I’m gonna get you a little summary in case you haven’t, but I encourage you to go back and listen about that. It’ll make this a little bit more clear. But I’m gonna go and try to keep it all clear for everybody.

So, a family trust is not a legal term. Family trust is a term that sounds nice, doesn’t it? What they’re really referring to is planning that just includes all your family. So, you probably start off with a revocable trust, a living trust while you’re alive. And then when you die, this would transfer into an irrevocable trust to protect your children. So see, you’re planning for the whole family, not just for yourself.

So let’s just sit in a nutshell, but let’s talk about trustees, because the basic element—and if you’d listen to my other podcast about trust, you know this insight. Every trust has a grantor, the person who grants the power to create the document, and grants the power to a trustee to manage the trust, to take care of the trust.

So, the trust is gonna own things: bank accounts, chickens, real estate, whatever. The trust owns them, but the trust is just a piece of paper. Someone’s got to take care of those assets. That’s the trustee.

And then the third element is the beneficiary, the person who benefits from the arrangement. Now, with a family trust, you’re talking about some generational issues, different people—because one of them might be you, but the other trust doesn’t exist until your dad. So you can’t be the trustee when your dad… right? Doesn’t work. So you gotta think about who’s the best fit for these situations.

Now, there are lots of particular situations. You might have a special needs kid. That’s different. You have to have somebody take care of them. It might be that you get incapacitated some days. So even though you’re alive and you can’t take care of yourself, somebody else has to be ready.

So we’re gonna talk about the most typical situation, but if you have something unusual, we should talk. There’s usually a way around things. Of course, it might just take some imagination.

So let’s start off with your revocable trust. When you’re alive, you form it. It’s gonna hold your house, maybe some other things. You’re the trustee. You’re the beneficiary. So who’s the trustee? You. If you’re married, it might be both of you to act independently.

Now, why would you have both of you? Because one of you might get Alzheimer’s. You might have a stroke. And now you have a spouse who can act independently, and they can take care of the assets even though you’re incapacitated. You can’t take care of things anymore.

So usually, while people are alive and doing okay, if it’s just you, it’s you. If it’s you and your spouse, you do it together. You manage things together, then one of you dies or becomes incapacitated, the other one takes over.

Now, here’s where you have to start thinking. When you’re young and your kids are younger, usually that’s all you do. But now let’s say you’re getting older. You realize that people can get sick, you might get sick, you might need some help. Strategically, it might be a good idea to name somebody as your backup—let’s say your child for now. It doesn’t have to be, but let’s say your child.

As co-trustee, while you’re alive and while you’re doing fine, they can step in if needed. You might have seen it—you probably have. People get sick. They get Alzheimer’s. There’s a gray area: do they have capacity to act and take care of themselves or not? Maybe some days they do, some days they don’t. It’s all a little hazy.

If you get into that area and you say in your document, “Hey, I’m the trustee until I’m confident my kid can take over,” when you have a problem, they’re gonna want to step in and help you, but you’re in that gray area. It’s hard. How do they prove to the bank that they should really take over? It could be difficult. We might end up in court, which is what we’re trying to avoid.

So instead, from the beginning, you say, “Hey, it’s me, my spouse, and we also named junior.” Junior can act independently. If junior doesn’t behave, you call me up, we’ll remove him. It’s a revocable trust. Meanwhile, junior just sits there, waiting to step in.

If something happens and you just can’t take care of things, junior is ready to go. He doesn’t have to prove anything to the bank. He’s already a trustee. He can manage your checking account, take care of the house, make sure your cat is fed, all those things. You teed them up and made it easy for them.

Is that ready? It’s not for everybody, but for some folks, it’s a good idea to have that person ready from the beginning.

Now, if one of you dies, typically the surviving spouse takes over. Fair enough. There you go. Your spouse takes over.

If both of you pass away, now you need somebody to step in. This is the person you trust. They manage your assets, pay your bills, pay the taxes, and distribute assets the way you want—charity, friends, separate trusts for your kids, whatever. This person doesn’t need to know how to do all of it, but they must be diligent. They can hire an accountant, a realtor, or a lawyer, but they have to make sure it gets done.

Some people say, “I want all my kids to do it together.” My follow-up question is: do they get along? Sometimes the answer is no. They hate each other. Don’t do that to your kids. It’s a mess. You gotta pick somebody. Sometimes it shouldn’t even be a child—it could be a professional. We want it done efficiently, and we want your kids to be able to have Thanksgiving together, not hate each other.

So we need to figure out who that person is and how they’ll interact with others involved. And then, when they’re done, the assets go into another revocable trust for the next generation. That’s the family trust concept. It keeps going, protecting your family from divorce and lawsuits.

But who’s in charge? If the beneficiary is old enough, they can be the trustee. That’s fine. If they’re too young, you have to pick someone responsible to manage the money until the child or grandchild is old enough to take over. Sometimes it’s an institution. If it is, it’s good to have a “protector” to check what the institution does and remove them if necessary.

So, in a family trust, there’s a series of trustees: while you’re alive, if incapacitated, for young children, or for special needs dependents. It’s good to brainstorm and pick the right person—someone flexible and capable.

There you go. That’s it in a nutshell. You might have a slightly different situation. We can talk about different trustees. Give us a call at 215-790-1095. Free consults. We can brainstorm with you and see what fits, then give you a price.

Like and subscribe, guys. Hopefully, I’ll talk to you again in the future. I’ll give you more information to enjoy. Have a great day.