How to Choose the Right Trustee

How to Choose the Right Trustee for Your Trust

The law in New Jersey gives a trustee a lot of authority over the administration of a trust. That can be either a good or bad thing depending on who it is that is acting as trustee.  Your trust is much more than just a document that says which heirs get what percentage of your estate should you die. A trust details how and when heirs are to receive their inheritance, who is to take charge over investment(s) and any businesses affairs, and many additional issues important to your estate.  Therefore, the choice you make to be the trustee for your living or testamentary trust is an important decision as part of your estate planning.  That’s because it is your trustee who is legally responsible for carrying out all of the instructions and details that you mandate in the trust. Let’s discuss this subject now in greater depth.

Understanding the Duties of Trustee Under N.J. Trust Law(s)

Duties of a Trustee Under a New Jersey Trust

While the powers of a trustee are considerable, as the creator of a trust you can determine the extent of the trustee’s powers in the trust agreement. A trustee must thoroughly understand the duties which accompany his or her status as the fiduciary of the trust assets.  The duties of a trustee vary from state to state, but in New Jersey, a trustee’s duties include the following at a minimum:

  1. The trustee has a duty to carry out the trust in accordance with the terms of the trust agreement.
  2. The trustee has a duty not to delegate the trustee’s duties to another individual-any duty which calls on the trustee to exercise skill and judgment may not be delegated (e.g., investment responsibilities). However, this duty does not prohibit the trustee from hiring professional experts, legal counsel, accountants, for example, professional investment advisors to evaluate the suitability and nature of trust investments.
  3. The trustee has a duty to exercise a reasonable degree of skill and care that would be required if the trustee were dealing with his or her own assets.
  4. The trustee owes a duty of loyalty, good faith, and honesty to the beneficiaries to faithfully administer the trust solely in their best interests.  This duty of loyalty prohibits the trustee from self-dealing with the trust.
  5. The trustee has a duty to possess, protect, and preserve the trust property.  The trustee must use ordinary diligence and care in the making of claims and in the collection of income and other receivables.  The trustee has a general duty to defend the trust and the interests of the beneficiaries against those who challenge the validity of the trust.  While the trustee is not an insurer of the trust assets, the trustee must use reasonable care and diligence in preserving and protecting the property (e.g., obtaining insurance on the property if an ordinary, reasonable, prudent individual would do the same).
  6. The trustee has a duty to segregate the trust property.  A trustee is required to keep trust property separate from the trustee’s own property.  If a trustee co-mingles his or her own property with the trust property, the trustee is liable for any losses resulting from the co-mingling.
  7. The trustee has a duty to make the trust property productive and increase its value.  The standards normally used to  make the property productive are controlled by a “prudent person” investment rule are decisions and actions in which the trustee may acquire, invest, reinvest, exchange, sell, and manage trust property in the same manner in which people of ordinary, reasonable, and prudent standards would manage it.
  8. The trustee has the duty to treat all beneficiaries fairly and impartially.  If a trustee has the duty to distribute income according to the trustee’s discretion, the trustee’s decision will be sustained if made in good faith.  The trustee must avoid behavior which favors one beneficiary over another.  If one beneficiary is favored over another, and the trustee cannot show good faith and good cause for the different treatment, the trustee may be accountable for a basis that can be proven by a beneficiary whose interests were injured.

 Choosing the Right Trustee

Choosing a Friend as a Trustee.  Is This the Right Choice?

When choosing a person to be the trustee of your trust, you need to answer this question:

  • Who can step into my place and confidently act as I would in carrying out my wishes? In other words, who do I trust the most in the world to make the decisions I would have made if I were alive to make them?

I tell every client when discussing a trust and selecting the right trustee to choose someone that they have full faith and confidence in. You should feel at ease that he or she will carry out your instructions as they are written in your trust and estate planning documents. Some typical trustee choices include a:

  • Close family friend
  • Close family member
  • Adult Child
  • Professional trustee
  • An honest and trustworthy person willing to service

Choosing a Trustee to Help Manage Your Financial Affairs

Your first thought may be to select a family member as a trustee. However, you should consider several factors:

  • Does the appointed family member or close friend have the experience and knowledge to manage your financial affairs appropriately?
  • When asked to make a decision that may affect another family member, will the appointed family member or friend be able to act in a fair and unbiased manner?
  • Will naming a family member or friend have the necessary amount of time in his or her life to manage the trust?
  • Does the family member or friend want to manage your financial affairs?
  • Are other family members willing to serve as trustee if the appointed family member is unable to do so?

While you may feel completely secure in giving this huge responsibility to a close friend or family member, there are several situations when that is not wise or possible.

Another alternative is to name a professional trustee and a family member (or yourself) as co-trustees. Doing so allows the family member to have a voice in the administration of the trust without being burdened by the day-to-day investment decisions and administrative responsibilities. It also may be suitable to name a professional trustee as successor trustee in case you or your family member is unable to serve.

Can a Trustee of a New Jersey Trust Just Quit and Walk Away?

Choosing an Outside Trustee

If you do not have a close friend or relative that you feel comfortable leaving this job to, or if by selecting one of the heirs to be a trustee may result in a conflict between them and other trust beneficiaries, then there are other options you can consider. You can hire an outside trustee like:

  • Your bank’s trust department
  • A trust company
  • Your lawyer
  • A professional trustee

Selecting a Professional Trustee

When choosing a professional trustee, it’s important to consider one who will:

  • Administer Your Plan – Choose a professional trustee who will execute your wishes as specified in the trust agreement. A professional trustee will include experienced trust administrators, portfolio managers and other trust professionals to service your needs.
  • Have a Sound Investment Philosophy – Look for a professional trustee who has a written investment philosophy, which includes quality investments based on investment objectives. A professional trustee also should be capable of helping you and your family develop a strategy to manage and distribute your assets according to your wishes, as specified in the trust agreement.
  • Provide Ongoing Communication – Select a professional trustee who will collaborate with you and your family, financial advisor, accountant, attorney and other estate-planning professionals. In addition, make sure the professional trustee you select provides monthly statements to help you evaluate whether you’re on track to meet your goals. Open communication, including phone calls and face-to-face meetings with your professional trustee, is important.

A professional trustee can work with you, your financial advisor and your estate-planning professionals to help determine a plan that is best for you and your family. But be careful, DO NOT under almost any circumstances select a large trust fund company or mega-bank. They are a train wreck and very difficult to work with. I know this from interfacing with them over the decades. Feel free to meet with me to discuss selecting the right trustee.

Remember…a professional can often work more effectively, which saves your heirs money, time and relationships. While there are benefits to not having a family member involved as the trustee there are some drawbacks to using a bank or trust company as your trustee.

First, banks and professional trustees charge fees for their services. They generally will only (not always, so check around) serve as trustee with a minimal estate value of around $2,000,000.  Their fees are based on a percentage of the trust estate.  They also tend to be very conservative and cautious.  This may or may not be a good thing.  You must decide that.

No matter whom you choose as your trustee, you want to be sure that you have full confidence in them to do exactly as you want, no matter what other people say. There may be heirs who are unhappy with the terms and conditions of the trust and will try to influence the trustee to do as they want. Knowing that you have a strong, trustworthy individual protecting your wishes will provide peace of mind.

Fredrick P. Niemann Esq.

If you have any questions or would like to meet to discuss selecting a trustee for your NJ trust

Contact Fredrick P. Niemann, Esq. toll-free at

(855) 376-5291

or email him at

fniemann@hnlawfirm.com

He is happy to answer your inquiries when you meet.  You’ll find him easy to talk to and eager to find solutions for your particular concern(s) or legal matter.

 

Written by Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a New Jersey Trust Attorney

Trust attorney serving these New Jersey Counties:

Monmouth County, Ocean County, Essex County, Cape May County, Mercer County, Middlesex County,
Bergen County, Morris County, Burlington County, Union County, Somerset County, Hudson County, Passaic County