The question of whether you can appoint multiple trustees for a testamentary trust, a trust created through your will, is a common one for estate planning clients in San Diego. The short answer is yes, you absolutely can. In fact, it’s often a prudent strategy to do so. While a single trustee is perfectly valid, co-trustees offer a system of checks and balances, shared responsibility, and continuity, particularly important for trusts designed to last for many years. Approximately 68% of trusts benefit from having more than one trustee, because it reduces the burden on any single individual and provides for smoother administration. This is especially true for testamentary trusts that may manage assets for beneficiaries over decades.
What are the benefits of co-trustees?
Co-trustees bring a diversity of skills and perspectives to the administration of a trust. One trustee might be strong in financial matters, while another possesses excellent interpersonal skills for dealing with beneficiaries. This complementary skill set can be invaluable. Consider the case of the Millers; Mr. Miller was a retired accountant, naturally adept at managing investments, while Mrs. Miller had a knack for communication and understanding family dynamics. Appointing both as co-trustees for their children’s testamentary trust allowed them to leverage their combined strengths. Furthermore, co-trustees provide a safeguard against potential errors or misconduct, as each trustee can oversee the actions of the other. They can also share the workload, reducing the burden on any single individual, particularly important for complex trusts.
How do co-trustees share responsibility?
The extent of shared responsibility among co-trustees is dictated by the trust document itself. Some trusts specify that all decisions require unanimous consent, while others allow for majority rule or delegate specific tasks to individual trustees. It’s crucial to clearly define these roles and responsibilities in the trust document to avoid conflicts and ensure smooth administration. Typically, co-trustees share fiduciary duties, meaning they must act with the utmost good faith, loyalty, and prudence in managing the trust assets for the benefit of the beneficiaries. They must also keep accurate records and account to the beneficiaries for all trust transactions. A poorly defined agreement can lead to disputes, litigation, and ultimately, a depletion of trust assets.
What happens if co-trustees disagree?
Disagreements among co-trustees are, unfortunately, a common occurrence. When such disputes arise, the trust document may outline a process for resolving them, such as mediation or arbitration. If the trust document is silent, the co-trustees may need to seek guidance from the court. This can be a costly and time-consuming process, highlighting the importance of clear communication and a well-defined decision-making process. I once represented a family where two co-trustees – siblings – were locked in a bitter dispute over investment strategy. The resulting legal battle eroded a significant portion of the trust assets, leaving less for the beneficiaries. It’s a painful lesson that emphasizes the importance of proactive planning and conflict resolution mechanisms.
Is there a downside to having multiple trustees?
While co-trustees offer many benefits, there are also potential downsides. Decision-making can be slower and more cumbersome with multiple trustees involved. There’s also the potential for conflict, as previously mentioned. Furthermore, co-trustees are jointly and severally liable for any breaches of fiduciary duty. This means that each trustee is fully responsible for the actions of the other, even if they were unaware of any wrongdoing. The administrative costs associated with a testamentary trust can also increase with multiple trustees, as each trustee is entitled to reasonable compensation for their services.
What about successor trustees in a testamentary trust?
In the context of a testamentary trust, designating successor trustees is just as crucial as appointing the initial trustees. The initial trustees appointed in your will take effect after your death. However, circumstances can change over time. A successor trustee steps in if an initial trustee dies, becomes incapacitated, or resigns. Designating multiple successor trustees provides an additional layer of protection, ensuring that the trust continues to be administered effectively even if one successor trustee is unable to serve. It is estimated that around 30% of trusts experience a change in trusteeship at some point during the trust’s lifespan, making succession planning an essential part of the estate planning process.
I appointed my sister and brother-in-law as co-trustees, and things fell apart…
Old Man Hemlock, a client of mine, meticulously planned his estate, including a testamentary trust for his grandchildren. He appointed his sister and her husband, both seemingly responsible individuals, as co-trustees. However, a few years after his passing, a rift developed between the couple. They disagreed vehemently on investment strategies, and their personal animosity bled into the trust administration. Accusations flew, legal fees mounted, and the trust assets began to dwindle. The grandchildren’s future was jeopardized by a conflict that stemmed from a lack of clear communication and a poorly defined decision-making process within the trust document.
How could this situation have been avoided?
Fortunately, with a bit of restructuring, things turned around. We amended the trust document to include a neutral third-party trustee – a local trust company – to act as a tie-breaker in case of disputes. We also established a clear investment policy statement, outlining the trust’s investment objectives and risk tolerance. Furthermore, we implemented a mediation clause, requiring the co-trustees to attempt mediation before pursuing litigation. The addition of the third-party trustee provided an impartial voice, while the mediation clause encouraged communication and compromise. As a result, the conflict subsided, the trust assets were stabilized, and the grandchildren’s future was secured. It highlighted the importance of proactive planning and the inclusion of mechanisms to address potential conflicts within the trust document.
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
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