It’s no secret that we believe that trusts are an essential part of an estate plan. As a brief refresher, consider 5 Reasons You Should Have a Trust. If you’re thinking of updating an existing trust or establishing a new trust, choosing a trustee is an important decision.
1. What Trustees Do
Within a trust, there is usually a section titled powers of the trustee, or something similar. This section will specifically define the various powers that the trustee has. Some common powers involve making investment decisions, holding title to property, lending and borrowing money, handling life insurance, and initiating and defending against litigation. The California probate code also gives trustees broad powers to manage trust property. [i]
The responsibilities of a trustee can vary depending on the grantor's needs (the person who established the trust). The assets held by the trust will also significantly impact what actions will be required of the trustee. Typically, more complex assets will require a higher level of attention. For instance, if the trust solely holds bank accounts, there may be little for the trustee to do besides distribute funds. However, if the trust holds real estate, it may require a sale of that property; or if the trust holds a business within it (such as an LLC), it may necessitate a series of actions to keep the business running, transfer its ownership, or wind it down.
Serving as a trustee may also include keeping records of the trust assets, reporting to beneficiaries on the trust status, and filing tax returns. The most important thing to remember is that trustees must follow the specific instructions laid out in the trust.
2. Co-Trustee Benefits
Naming co-trustees means that two or more individuals (or entities) must work together to administer the trust. In California, the law promotes a system where co-trustees are on equal footing. The probate code provides that, unless the trust document says something to the contrary, all trust decisions by co-trustees must be made with unanimous consent. [ii]
For a long time in the U.S., families with two or more children were the norm. However, since the late 1970s, the average number of children per household has been below 2. [iii] When families have more than one child, it seems natural to want to name some (or all) of them as co-trustees on the family trust. In some ways, parents may have felt that structuring their trust in this manner would show equality among their children. Parents may have hoped that after they’d passed away and it was time for their children to manage the trust assets, giving each child a seat at the table would lead to fewer disagreements. For these reasons, it’s not uncommon that we see siblings serving as co-trustees.
When co-trustees work together, multiple opinions and various skill sets can be an asset. Multiple people serving as co-trustees can bring a diversity of viewpoints which can be invaluable. In situations where the trust assets are substantial or include complexities (such as business entities or multiple pieces of real estate), drawing from a deep well of experiences can be of great benefit.
Utilizing co-trustees can also mean an increased likelihood of administering the trust accurately and fairly. Co-trustees can operate a kind of checks and balances system. When multiple people have eyes on the situation, and a say about what happens, potential mistakes can be corrected. The co-trustees can hold each other accountable so that the grantor’s wishes can be carried out exactly as intended.
3. Co-Trustee Drawbacks
One of the most significant benefits of a co-trustee setup can be one of the most significant drawbacks. On the one hand, there are multiple people collaborating on the trust administration, and it can lighten the load; however, on the other hand, when multiple people are involved, there is an ever-present potential for conflict and disagreements.
When disagreements regarding the trust arise and cannot be settled amongst co-trustees, sometimes the solution is to file a petition with the court under Probate Code Section 17200. [iv] This process for petitioning the court is time-consuming and potentially expensive. In this scenario, co-trustees can also request that attorney’s fees be paid from the trust, thereby diminishing the trust assets. In all likelihood, the trust's grantor did not intend for the co-trustees to spend trust assets to resolve disputes amongst themselves.
Additionally, when more than one person is involved in the decision-making, it can slow down the administration process. While a sole trustee can act quickly, obtaining approval for each decision in a co-trustee situation can be laborious and potentially frustrating.
When a co-trustee doesn’t want to cause conflict or slow down the process, some might ask whether that co-trustee could allow the other co-trustee(s) to handle everything. Even with such good intentions, California law imposes a duty on each co-trustee to participate in the trust administration. [v] Moreover, failing to participate could result in the co-trustee being held liable for breach of trust.
4. Parting Thoughts
Evaluating whether appointing co-trustees is appropriate for your situation is immensely personal and depends on each grantor’s unique circumstances. At a minimum, it would be a good idea to ascertain how well the co-trustees know each other (if at all) and whether they would work well together. Good organizational skills are helpful for those in a trustee role. Another factor to consider is time – who will actually have the time to tend to the needs of the trust? This isn't easy to gauge because peoples’ schedules and commitments can vary wildly over time, i.e., it could be several years between when the trust is established vs. when the trustee may need to take action.
Whomever you name as a trustee or co-trustee, we recommend conversing with them about your expectations and getting their consent before naming them. If you have multiple children, it’s usually a good idea to meet with all of them to gauge their level of interest and provide clear communications about your wishes. Having this type of conversation upfront can help avoid surprises down the road and potentially stave off disputes about who should administer your estate. If we can assist in navigating any of these decisions or having these conversations with your loved ones, please don’t hesitate to schedule a call or email us at info@sherwoodfp.com.
Finally, we highly recommend telling your trustee where your estate planning documents are located. It may sound incredibly simple, but the last thing you want is to go through all the effort of creating an estate plan and then have the trustee be unable to locate these vital documents. There is no universal repository or agency that houses copies of estate planning documents, so it is imperative that your trustee be able to locate these items easily.
Disclosures: This information should not be construed as investment, tax, or legal advice. All statements and opinions expressed herein are based upon information considered reliable at the time of publication and are subject to change without notice.
[i]. California State Legislature. “California Probate Code Section 16227.” California Legislative Information Code Section. Accessed April 9, 2023. https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?sectionNum=16227&highlight=true&lawCode=PROB&keyword=16227.
[ii]. California State Legislature. “California Probate Code Section 15620.” California Legislative Information Code Section. Accessed April 10, 2023. https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?sectionNum=15620.&lawCode=PROB.
[iii]. Duffin, Erin. “Average Children per Family U.S. 2022.” Statista, December 13, 2022. https://www.statista.com/statistics/718084/average-number-of-own-children-per-family/#:~:text=The%20typical%20American%20picture%20of,18%20per%20family%20in%201960.
[iv]. California State Legislature. “California Probate Code Section 17200.” California Legislative Information Code Section. Accessed April 10, 2023. https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?sectionNum=17200.&lawCode=PROB.
[v]. California State Legislature. “California Probate Code Section 16013.” California Legislative Information Code Section. Accessed April 10, 2023. https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?sectionNum=16013.&lawCode=PROB.