I received this question from R.B.G., of Fort Lauderdale, FL., who wrote:

One thing that concerns me is who will be entrusted with the care of my assets when I create a Living Trust and either become disabled or pass away. What do I look for?

Dear R.B.G.:

As we know, there are essentially three parties involved in a trust: the Grantor (whose assets are used to fund the trust), the Beneficiary (who receives the benefit of the income and/or principal of the trust), and the Trustee (who handles the day-to-day administration of the assets in the trust). A Living Trust often has the Grantor and Trustee as the same person.

Choices for a co-Trustee or Successor Trustee include, but aren't limited to, a beneficiary of the trust, a family member, a trusted friend, an individual who is a professional fiduciary or a bank or trust company. You can have more than one Trustee using almost any combination of the above. As you might have guessed, cost is a factor in your decision.

A Trustee is entitled to a statutory commission, where their fee is not fixed by the Trust document itself or by prior agreement. A trust beneficiary may waive their Trustee's commission because those fees are earned income and possibly income taxable for social security purposes. On the other hand, a bank or trust company is sure to require their fee be paid. Keep in mind that Trustees have duties, such as investment of the trust corpus or principal, and if they do not have expertise they will be required to obtain it, which is likely to be an added expense of the trust.

Another factor to consider is the personality mixes of the Trustee(s) and the Beneficiary(ies). Sometimes a Beneficiary asks for a discretionary distribution, which a friend or relative may find difficult to deny. Other times that friend or relative may know of special circumstances which need careful attention, such as a Beneficiary with a disability.

The size of the trust's assets must be considered because smaller amounts may not justify a trust company's fees and larger amounts may demand more time and effort than an individual can afford to give. The potential lifespan of the trust must be judged as to the continuity of the Trustee's attention; generally, a bank or trust company is expected to continue in existence. Also, look at the types of trust assets because your Trustee may be called upon to handle on-going decisions necessary to keep your business running or they may simply say "no" to being Trustee if they sense possible liability arising from particular assets - such as real property near a former waste disposal plant.

The prior discussion did not consider estate taxation; however, you must be aware of this issue also. A Living Trust, where you appoint a Beneficiary as Trustee, may cause the assets to be included in their estate for estate tax purposes. Unless this is intended, it can be devastating to that Beneficiary's planning for their own estate. One way to protect against this is to have two Trustees and put each in charge of certain duties, thereby removing the devastating possibility.

As I have always written here, it is best to consult with a professional to assure yourself that the results you intended are secured. For more information on estate planning, contact an attorney or other professional in your area who specializes in this area.