If you are choosing a trustee for a dynasty trust, an asset protection trust, or a trust used to establish residency in a certain jurisdiction, then you better pick a corporate trustee or a professional trustee. Even if they don’t provide a lot of services, their fees are justified by their credibility if the trust is attacked, by their independent approval of related party transactions, and by the cost of their malpractice insurance. The IRS and the courts have busted many a trust by proving that the trustee was a straw man and the trust was a sham. (See Sparkman v. Commissioner, 509 F. 3d 1149 (C.A. 9, Dec. 10, 2007)).
If you are selecting a trustee to administer your family living trust, the analysis is different. You have the option of picking a family member, friend, CPA, or a professional trustee. I usually recommend a professional trustee because they are qualified, experienced, capable, unbiased, and they have the time and energy to get the work done. But most people ignore my advice and appoint a family member who has no qualifications, no experience, no independence, no time, and no desire to serve in that capacity. Most people pick a family member in order to save money, failing to factor in the cost of probate litigation, restraining orders, and strategic warfare among their heirs when the estate is administered by a family member.
Being chosen as an executor or trustee is a lot like being asked to referee a church basketball game. You have little to gain, and no matter how hard you try, you will probably be disliked, accused of being unfair and incompetent, and you will probably find yourself in the middle of a melee. I have personally played in a game that involved six technical fouls, two ejections, and a chipped tooth. The referees were atrocious, but, most importantly, we won the game.
These are some factors to consider in selecting a trustee:
- Someone who is honest and trustworthy. If they have deep pockets, you have greater assurance they won’t steal or your money and leave you without recourse.
- Someone who is qualified and capable. It helps if they have accounting skills, investment experience, and some business savvy.
- Someone who is organized, responsible, and capable of decent record keeping.
- Someone who is fair, unbiased, and a good communicator.
- Someone in your geographic vicinity.