Is your trustee trustworthy?
When creating a trust, choosing the right trustee to manage the funds over time may be one of the most important decisions you'll have to make.
While many people are inclined to choose a close friend, that's often not the best course of action.
"If you pick someone you can rely on but who doesn't have financial savvy, that can be a challenge when talking about larger sums of money," said certified financial planner Ian Weinberg, CEO of Family Wealth and Pension Management. "It's a big responsibility, [and] that person needs to be able to take on that role."
Ideally, Weinberg said, the person should have a good amount of experience in some or all of the following: investing, taxes and law and perhaps some experience running a business.
"The trustee needs to have the savvy and disciple and experience to know when requests are being made that are legitimate and when it could be to the detriment of the trust," he said.
Typically, trusts are set up to provide income and then capital at certain age intervals and for certain specific uses, such as buying a home, paying college tuition or funding a business. But there could also be requests for distributions that aren't clearly defined in the trust—in which case, the trustee would have to make the decision.
If you do pick a trustee who's a friend, you should, at a minimum, also have a co-trustee, he said.
Additionally, when young children are involved, it's best to choose different people to act as trustee and as guardian; divvying up these roles can avoid many potential conflicts in the future.
Russ Weiss, a certified financial planner with Marshall Financial Group, said it's also important to choose a "friendly trustee," or someone who can understand the parents' values.
He added that you should have good communication ahead of time with the trustee as well as the kids—provided they're old enough—to explain to them why certain language was included in the trust and why someone was chosen as trustee.—J.W.