Estate planning is about family. Often, individuals opt to establish a trust to preserve and plan for the benefit of their spouse, children, and generations to come. Trusts are intended to create a plan for the inheritance of assets and avoid conflict among the beneficiaries. In keeping things within the family, individuals often choose to appoint a trusted family member to serve as trustee of the trust. The benefits of a family member trustee can be obvious. The family member knows the other family members and is familiar with relationship dynamics. The family member is a part of the family and already has established trust with the beneficiaries.

Family, however, can be complicated and so too can the responsibilities of a trustee. Emotional entanglements, sibling rivalries, and unresolved conflicts can quickly shift harmony amongst family members to acrimony and unfortunately implicate the family member trustee in a tug-of-war battle between a family feud and their mandatory fiduciary obligations as trustee.  In the context of trust administration such acrimony can unfortunately lead to fighting—possibly in court. This article explores a few considerations for choosing a family member as trustee as you plan for your family’s future.

#1 – Conflicts of Interest

Perhaps your appointed family member is also a beneficiary of the trust. In this scenario, the trustee may have difficulty separating their fiduciary duty to act in the best interest of all the trust beneficiaries from their personal interest as a beneficiary. This dual role can be complicated and even disqualify the family member from serving as the trustee.

#2 – Is the Family Member Up to the Job?

Being a trustee is not a passive role and comes with many responsibilities. A trustee always owes the duties of care and loyalty to the trust and its beneficiaries. The trustee must always act in the best interests of the beneficiaries. Upholding these duties involves managing the trust assets, which may include real property, financial accounts, and tangible personal property. A trustee must protect these assets. In addition, a trustee’s job may also involve investing the assets. If so, a trustee is bound to make prudent investments on behalf of the trust. This undertaking requires strategy, skill, and caution. A trustee is also involved in the daily administrative tasks such as making and maintaining detailed records of the trust’s transactions, including income, expenses, and distributions.

Further, a trust agreement will likely have been written by an attorney using complex legal language. An unsophisticated family trustee may not fully understand the terms of the trust agreement. A decision made by the trustee that is not actually in accord with the trust terms may be inadvertent, but nevertheless, the trustee may face personal liability for that decision.

The role of trustee requires accountability, organization, and compliance with important regulations. Keep this in mind when choosing a family member trustee.

#3 – Does the Family Member Have Special Expertise?

Perhaps your family member is a financial advisor. As trustee, that family member can, and in fact, must, use her particularized expertise in financial advising, as trustee. When a trustee has special skills or expertise, it is the trustee’s duty to use those skills or expertise with relation to the trust.

#4 – Inevitable Emotional Family Dynamics.

No matter how tight-knit a family is, when it comes to mixing family and inheritances, conflict can arise. Further, mixing family dynamics with inflexible obligations can impose the additional burden on the trustee to enforce difficult boundaries. Certain family members may perceive that others are receiving more favorable treatment. Other family members facing financial hardship may burden the trustee with difficult propositions and unreasonable demands for distributions.

Despite the underlying dynamics, no matter what, a trustee has the obligation to act impartially, without favoring any beneficiary over another, and make decisions based on facts and the trust’s terms, as opposed to making decisions based on relationships or desires. In choosing a family member as a trustee, it should be kept in mind that conflict, including even minor disagreements, can cause unpleasant scenarios between family members.

Conclusion

Family is often the most important and yet most complicated part of life. Planning one’s estate by use of a Trust is intended to avoid conflict and create an organized plan for the future. For some, choosing a family member as trustee may be in the family’s best interest. For others, this may not be the case. When considering choosing a family member to serve as a trustee, consider important and complex family relations in conjunction with the equally important and complex obligations of a trustee.

This article is not intended to be legal advice to trustees and does not review each obligation of a trustee. If you have questions, please contact any of the lawyers in Lasher’s Trusts & Estates Litigation group.