law offices of merwyn j. miller
191 calle Magdalena, suite 270 • encinitas, San Diego County, ca  92024 • 760-436-8832

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Selecting the Successor Trustee—

More Difficult Than You Thought!

The Job
The Choices
Family and Friends
Trust Companies
Negatives to Trust Companies
Factors to Consider
Who Can Help You Select a Trust Company

Introduction: Bob and Lori were about to make an estate planning appointment with their attorney. They were discussing who should manage their financial affairs if they were unable. They had three children, so why not make it the eldest of the three, first, and then simply chronologically from there? If they follow that approach it could be the biggest mistake of their lives!

The Job: Who to select for the job of successor trustee or holder of the Power of Attorney (I just call them all “the manager”) can be a tough one. The manager has to jump in and take over the finances and investments when either Bob or Lori dies and the other one becomes overwhelmed (or mentally incompetent). This might not sound like all that much since the eldest of Bob and Lori’s children is doing pretty well and has his own investments, so why can’t he take care of his parents’ also.

The Choices: Here’s the spiel I give my clients: There are two dominant groups to choose from. First, you can pick a family member or friend. Second, you can pick from the “other” category.

Family and Friends: If you are picking from the first group you are looking for someone who is part attorney, part financial planner, and part accountant. 95% of the world is gone right there, including myself, so I am not suggesting that I be named. You also need someone who everyone trusts and gets along with. And lastly, but very important, you need someone who has done well enough in life that he or she is retired or semi-retired. This is due to the fact that, although you are bestowing an honor, you are also piling a job on someone. And if that person already has a full time job, just where does the time come from? (And, yes, it is a lot of time. Having dealt with my mom’s estate both before and after she passed, I can tell you it took a load of time to do everything.) So Bob and Lori should compare their eldest, along with the other two, to these characteristics. How close to that ideal do they come. If none of them pass muster then they are going to have to pick from the “other” category.

Trust Companies: The “other” category is made up of trust companies. And this includes banks. Some people will say there is no way on God’s green earth that a trust company is going to be allowed to take care of their money. The reality is, however, that anything that you do all the time, you tend to get pretty good at it. Just think about anything that you have done multiple times. The first few times it took you forever but after that you got better and better and more and more efficient at it. That’s how trust companies work, too. Further, although the trust officer may take a vacation, there is always another trust officer to fill in. And if the trust company screws it up, they tend to have very deep pockets from which to collect reimbursement. And, though they are not uninterested, they are disinterested; this can be very beneficial when there is more than one beneficiary or the beneficiary is a minor.

Negatives to Trust Companies: So is there a negative to trust companies? Of course! On the theoretical down side, they charge for their services. But I would tell your child to charge anyway since a good part of his or her life is going to go towards this effort. So really no matter who you select, there could well be a charge.

Factors to Consider: Any factors to consider on which trust company to select? What about whether all trust companies charge the same? Of course not. But my experience is that one really never knows which one is the least expensive. Why? Because those with low base fees typically have higher transaction fees and those with high base fees, lower transaction fees. So it is impossible to tell. What about investment returns? Well, bad news here, too. There is no standard way for trust companies to quote their returns (unlike mutual funds). So it is difficult at best to compare returns.

Who Can Help You Select a Trust Company: Are some trust companies better than others? Obviously! But who is good today can be bad 5 years down the road. So any document should have some sort of kick out provision so that the management can be swapped to a different trust company. And, indeed, this is where a good attorney can be quite helpful because he can suggest who is good right now and what trust company might be a good fit for you (that’s right, it’s not one size fits all).

You should be able to tell from the above that Bob and Lori better reconsider their concept of whom to choose to serve. And they better have the help of an experienced and knowledgeable attorney.