The Elder Law Coach

Epi 49: The Trustee Dilemma: Family vs Commercial Fiduciaries

• Todd Whatley

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Todd Whatley continues his trust-focused discussion by exploring the critical yet often overlooked process of trustee selection. He examines why this decision deserves more attention than the typical "oldest child" default approach, emphasizing that being a trustee is a demanding job requiring specific qualifications.

• Trustee responsibilities include managing assets, ensuring compliance with trust terms, distributing assets fairly, and handling administrative tasks
• Commercial trustees provide expertise and impartiality, often worth their fee to prevent family conflicts
• Key qualities in an effective trustee include financial acumen, organizational skills, integrity, and communication ability
• Common mistakes include selecting family members without proper qualifications or choosing unavailable/uninvolved trustees
• Co-trustees can provide shared responsibility and checks and balances but may create conflict and slow decision-making
• Special circumstances like special needs trusts, charitable trusts, and trusts with vulnerable beneficiaries require specialized trustee knowledge
• Trustee challenges include beneficiary disputes, trustee burnout, and balancing the interests of different beneficiaries
• Attorneys should provide education and resources to help trustees understand their responsibilities

If you want to learn more about elder law coaching or have questions, visit theelderlawcoach.com to schedule a conversation with Todd.


Check out our new website www.TheElderLawCoach.com.

Speaker 1:

Thank you. Specialized experience, Whether you're an established attorney looking to refine your expertise or an emerging lawyer seeking a successful foray into elder law, this is your masterclass. Now let's get started with the luminary in the field. Here's Todd Whatley.

Speaker 2:

That's right. This is the Elder Law Coach and my name is Todd Whatley. As always, I'm extremely appreciative that you joined me today and I am continuing today my little rant on trust. I think in my practice I have seen a lot of these issues come up and questions that I've had to answer, issues that I've had to address. I thought, well, if I'm dealing with it, I'm pretty sure my coaching clients and other elder law attorneys out there are dealing with it, so let's talk about it. Okay, today I want to talk about trustee selection.

Speaker 2:

I think we don't spend enough time on this. Sometimes we're like, hey, who do you want to be the trustee? The oldest daughter, she's fine. Yeah, okay, next, no, I think we need to let our clients understand the importance of this, and if you do trust in administration, you understand the trustee does a lot of stuff and it's a job, and so I want to go through this as a way to help you think about this and also bring it up in your client meetings, so hopefully you can avoid some of these issues and help your clients make good decisions. Again, kind of like I talked about in the last episode is that there is a lot of pressure on the public to do trust by non-attorneys. Either do it yourself or do it through your financial advisor or even your CPA sometimes. Your CPA sometimes and I think people aren't getting good advice and we have to show why we are the experts and why people need to use us to do a trust as opposed to a non-attorney.

Speaker 2:

Okay, so, number one when we're thinking about the trustee, let's just review quickly what is the role of the trustee. Number one they have to manage the trust assets. They also, particularly after the grantor dies and the successor trustee comes in, a huge role of the trustee is ensuring compliance with the trust terms. They have to do what the trust says or else they get sued. They have to distribute the assets to the beneficiaries. They have to do it fairly, they have to do it correctly, they have to get the best value and, particularly in a contested environment, if there is a family that is fighting, that's going to be a huge issue, and so they have to do it correctly. And they have to handle administrative things like taxes and record keeping and insurance, just keeping everything up to date, not just estate taxes or income taxes, but taxes on personal property taxes, real estate taxes, things like that it's a job. Okay, it is a full-time job and I will tell you throughout this.

Speaker 2:

I am starting to recommend commercial trustees very often in these situations because it's a job. And you know, one thing that I've started telling my clients is give your children the gift of a commercial trustee. Yes, it's going to cost some money, but let the commercial trustee step in. The kids can still go to work and still do everything they need to do, and the commercial trustee takes care of everything. Okay, if they don't choose a commercial trustee, let's go through and talk about some of the key qualities that will make a good trustee or an effective trustee.

Speaker 2:

Number one financial acumen they need to understand money. Understanding how to manage and invest assets prudently is very important. Again, there's a fiduciary duty. They have to do this for the benefit of the beneficiary, so that they don't get sued. Organizational skills they need to keep very detailed records of everything and stay on top of deadlines. I will tell you. If you have more questions on this, please let me know and go back a few episodes to the Trustworthy podcast. I've interviewed the CEO of Trustworthy. It's a online platform that people can upload everything that they have all their insurance, all their utilities. Everything goes in here and it's one place you can go and find it, and that's a great tool for the trustee to be able to just step into that role and see everything and be able to manage it, and I supply it for free to all of our trust clients. Ok, and if you want to talk about that, let me know.

Speaker 2:

The trustee needs to have integrity and trustworthiness. Absolutely, they need to be above reproach because there's a lot of people looking at them and making sure that they are doing the right thing and they need to act in the beneficiary's best interest, avoiding conflicts of interest, and a lot of times that's just difficult when it's a child. They're trying to look out for the best interest, but they're also looking out for theirs, and it's so easy to violate the conflicts of interest. It's like your friends are real estate agents. You want to use them, but the family may not want to. They may think that you're getting a sweetheart deal or that you know the agent's trying to just sell it quick so they can get a quick commission, rather than for the best price. I mean, there's just always something coming up.

Speaker 2:

The trustee needs to have very good communication skills. All right, being able to do the job and then communicate the job. It's very time consuming. You need I tell trustees you've got to keep your siblings up to date. If they have questions, answer their questions, because we don't want them getting upset, we don't want them thinking that you're doing something wrong and this whole thing ends up in court. Communication is key to that. Keeping them up to speed, letting them know what you're doing, being very transparent is crucial.

Speaker 2:

All right, mistakes what are some of the mistakes that we make when we choose a trustee? Many times we choose family members without the proper qualifications. It wears me out how this generation that I'm working with, the older generation, is like oh, the oldest son is the one that's supposed to do this. Well, maybe, or maybe not, maybe they're not the best one with money. Maybe the second child's a daughter and she's really good with money and she should do this. The right person. Pick the person who's best through all those things I just talked about. Financial acumen that is very organized, has integrity. Pick the person that is best.

Speaker 2:

Ultimately, pick a commercial trustee. Finally, I get to that, if they struggle with it any at all, it's like pick a commercial trustee Advice at all. It's like pick a commercial trustee Advice consider whether a family member has the capacity to act objectively and competently and has the time to do it. Okay, you've got to pick the right person. If there's one kid works all the time and it's just busy all the time, but another kid is retired, maybe the retired one is the best one because they have more time to do it. This is going to be time consuming.

Speaker 2:

All right, I've seen people sometimes pick the uninvolved or unavailable trustee. How many times have you been working with clients and I've seen this so many times that there's a child local and there's a child that's away, and so this goes one end of the spectrum or the other. Rarely is it in the middle. So sometimes you'll see the child who's here is the one who is involved, is the one who's you know, making sure mom and dad are fed, and you know, and they're the, the golden child, and the child who never comes to visit is the child that is shunned. But I have also seen the exact opposite. I've seen where the local child is the. You know they're nosy. They're messing up their life. They told me I shouldn't drive. They're trying to look at my bank accounts all the time they're stealing money out of my account, which they're not. And the child that is local is the one that gets the hatred. And that other child who never comes to visit, oh, they're the golden child, because every time they show up everybody takes off that that child is there all the time. Oh, dad, I'm so glad to see you. What can I do for you? And you know, they're just the golden child when they show up twice a year. And the other child child is the one busting their tail trying to keep mom and dad in the home and safe and fed. And all of this they're the bad child. So sometimes selecting the wrong kid to be the trustee like picking the kid who is not local because they're the golden child probably is not a good idea. Because they're not here, they don't know what's going on and you just run into those situations.

Speaker 2:

I recommend in these meetings, discuss availability and commitment of the trustee. That is crucial. You've got to find someone who has the time available to do it and who is committed. Don't pick the disinterested child Again. Every time I can do this, I try to recommend a commercial trustee. The corporate trustees or fiduciary services can provide expertise and impartiality. This is just what they're trained to do. They have all day to do it. They are trained, they are licensed, they are bonded. This is what they do. It is going to cost. A commercial trustee is going to cost money, but I think their fee is absolutely worth it. Okay, they earn their fee. They keep everything balanced. They invest money, pay the taxes, pay the bills I mean everything's taken care of. That is their job. They have staff to do that.

Speaker 2:

Okay, let's talk about co-trustees. People like I have two kids. I want both of them to be the trustees. Well, the pros of that. Sure, there's shared responsibility. Okay, if one kid can't do it today, the other kid can. So there are some benefits to being co-trustees. There are checks and balances, making sure both kids are able to check the bank account, see what's going on, be involved in the sale, be involved in the valuation. There are benefits to that and also sometimes diverse perspectives help. Having two people look at something from two different angles can help make sure that it gets done correctly.

Speaker 2:

But there are some cons. The biggest con is the potential for conflict If they don't get along, if they see things differently and they can't get along and I love the cases it's like, well, my kids don't talk, but yeah, I will name them as co-trustees. It's like, really, they don't talk to each other, they don't like each other. You know, something is there that's causing them to not talk to each other. If you want to tie them together to carry this out, it's like, absolutely, you really need a corporate trustee. It can be a slower decision process if you have two of them to have both of them involved.

Speaker 2:

Almost always if I am wrangled and said I want co-trustees, yes, ma'am, I will do co-trustees. I will give them independent authority to act, requiring two signatures on everything. Number one the bank is not going to open an account that requires two signatures, because that means if they let a check come through with only one signature, they're going to be held liable. And banks do not look at checks anymore. They don't review those to see if the required signatures are on there and the person taking the check doesn't know there needs to be two signatures. And so I'll just tell you just from a practical standpoint banks will not accept account. They will not open an account that requires two signatures on the check. So the best thing to do here is I would do a corporate trustee or one trustee and then the other, not co-trustees.

Speaker 2:

Now, sometimes there are specialized trustee roles. I will do a co-trustee when they're like I just want my son to do it, but he may need some help. Okay, well, let's have a corporate trustee as the co-trustee. I do encourage that. Sometimes people won't fully, won't do just the commercial trustee, but sometimes they will make the commercial trustee the co-trustee and it's not best. But it's better than commercial trustee not being involved. They will make sure that the other trustee gets things done. But sometimes there are specialized trustee roles. Number one special needs trust. In a special needs trust I highly, highly, highly almost demand that if you do a special needs trust, you need a commercial trustee and a commercial trustee who does special needs trust. All right. Charitable trust those get complicated tax wise. You need to follow the tax rules and you need to really know what you're doing. So I will many times say look with a charitable remainder trust, we really do need a commercial trustee to make sure that they understand charitable laws and tax laws.

Speaker 2:

Revocable trust If I am doing a Medicaid asset protection trust irrevocable trust I will say the grantor cannot be the trustee. In Arkansas our Medicaid offices are very picky and if we name an irrevocable trust with the applicant for Medicaid as the trustee of the trust, they will almost every time say I don't care what it says, they're the trustee. They can somehow get money from this trust. So therefore, the trust is a countable resource. So I tell my clients you can't be the trustee for sure and I really don't recommend that you be the beneficiary, but that's another show.

Speaker 2:

Now the trustee has to care for beneficiaries. Okay, that's a very unique balancing act, particularly when there are corpus rules and income rules. How do you determine between what's an increase in corpus and what is income? So this requires that the trustee have to balance the needs between current beneficiaries and future beneficiaries. If this is a fairly good size trust and the person has set up income beneficiaries versus corpus beneficiaries later on, say, many times, the children get the income but the grandchildren get the corpus, how do you balance between what is income and what is corpus? That is difficult and in that situation, if we want that split, you really want a corporate trustee. Okay, just because someone's going to get mad, someone's going to throw a fit, and if this is Uncle John doing it, uncle John's probably going to get sued, okay. So Be careful with that. Make sure that they understand.

Speaker 2:

You have to treat both beneficiaries fairly and that gets very complicated sometimes. Sometimes the assets will be left to minors and so you want to make sure that the money benefits the minor, not the parents, not someone else. And again, if it's Uncle John, they may be persuaded to pay for the entire Disney trip, not just the Disney trip for the child. They may pay for the parents and everybody's trip from the trust, when really they should just be paying for the minors portion of the trip. You see how that conflict can occur. Special needs beneficiaries again, if you don't do it correctly, the trust can be deemed to be a countable asset and that's a problem. And then sometimes there are vulnerable beneficiaries, like, sometimes, special needs, sometimes not completely disabled, but just very susceptible to here let me give money to my friend or let me buy this for you. They don't understand the purpose of money and they want to spend lots of money. So keep that in mind.

Speaker 2:

Again, communication is key. Make sure that everybody understands what's going on. So how do we plan for potential trustee challenges? What about disputes within the beneficiaries? What if there is a fight between them? Is the trustee able to deal with that fight? Are they the parent of one of those children versus a niece or nephew? That gets difficult. That gets allegations of special treatment, of not being fair. It just brings up issues of problems, and so, therefore, many times in a trust, there will be mediation language to say, hey, if there's a problem, if something comes up, this is going to mediation rather than just immediately jumping into it.

Speaker 2:

Sometimes trustees burn out. Sometimes they're just I can't do this anymore, but mom's selecting me, I've got to keep doing that and they're just burned out. They don't keep track like they should. They're just starting to get burned out. If you hired a commercial trustee, either they suck it up and do it, or they bring in an associate to be the trustee and they back out and let a new person do it. Okay, so that's you know you. You have to keep that in mind, particularly for these trusts that are going to last for years, to generations. You need a trustee that can do it for the duration. Okay, all right, tools and resources.

Speaker 2:

I think we, as attorneys, have some duty to educate the trustees as to what their role is, what they need to do, and so I encourage the trustee to come in when we sign the trust. That doesn't always occur. I've never done this, but I've heard of attorneys doing trustee boot camps. They will do like a public event and invite the trustees of the trust they have drafted and sometimes just as a business generation tool, they'll say, hey, if you are the trustee or if you've been named as a eventual trustee of any trust, not even one that I drew up, come to this event, let's talk about it and let me teach you how to become a trustee. And then, if you're the attorney teaching it, chances are that's who they're going to come when the time comes for them to do it. So it is a way to get some trust administration work to come in from trust that you didn't do Checklists, guides, professional advisors. A lot of the people that I know that do serve as commercial trustees. They will sometimes do a free consult with someone, obviously with the hope that they'll quit, and let them do it. But a lot of people I know I trust and respect that they will meet with these trustees and say, okay, let me give you some pointers. Here's some things to look out for, but if you need me in the future, call me. Okay, and so it is kind of a marketing tool for them.

Speaker 2:

I could go on with stories. You know situations where this has occurred, but you're an attorney, you've seen it, you understand where this can go wrong. But hopefully this podcast has opened your eyes to some of the issues and in hope I have encouraged you to spend a little more time when you're going through the trust planning, meeting with the client and you're like okay, who do you want to be trustee? Billy, he's the oldest. Okay, billy, what if Billy can't do it? Amanda, great, okay, next. No, spend some time, stop and say, okay, let's think about this, because this is very important and hopefully this podcast has opened your eyes a little bit to that importance and how to deal with it. And again, as a way to help bring in more business, because you're dealing with things that the do-it-yourself legal Zoom trust questionnaire doesn't cover, and even the financial advisor or CPA who is farming this out. But getting the client to use them rather than attorney. This will differentiate you, show you as the expert and hopefully get you some people in. That will help increase your business.

Speaker 2:

Okay, as always, I am the Elder Law Coach. I would love to teach you how to do this. If you want to get more into elder law, I can definitely help you with that. I would love to walk you through this. If you have questions, go to our website. I can definitely help you with that. I would love to walk you through this. If you have questions, go to our website, the elder law coach dot com. There is a place there that you can schedule a phone call with me.

Speaker 2:

Let's talk about it. I promise, promise, promise you that I will not push you into this. I've actually told a number of people, particularly here lately, that are a little, I think, overzealous and I'm like I don't think you're ready yet. Okay, do this and this, get this under your belt, do a few things here and then call me and let's talk again in six or eight months. Okay, so I am not going to get you to do this if I don't think I can get you successful and if I don't think your practice is ready. We'll be very honest. I can't work with everyone. I don't want to work with everyone. But, yeah, give me a call, let's talk about it, and if I think we're going to be a good fit, we'll talk about it. You'll know it, I'll know it and we can carry on. Okay, thanks again for listening. Please subscribe, please share this with someone and I will see you next time, okay.

Speaker 1:

Thank you for joining this episode of the Elder Law Coach podcast. For those eager to take their elder law practice to new heights and are interested in Todd's acclaimed coaching program, visit wwwtheelderlawcoachcom. With Todd Whatley by your side, the journey to becoming an elder law authority has never been more achievable. Until next time, keep learning, keep growing and stay passionate about Elder Law.