Who Should Really Be the Trustee of a Trust? – Avoid This Mistake + FAQs

Before deciding who should be trustee, it’s important to understand the main players in any trust:

• Settlor (or Grantor): This is the person who creates the trust. They contribute the assets and set the rules in a legal document (the trust agreement). For example, if you start a trust for your children, you are the settlor. (Synonyms: grantor, trustor – all refer to the trust creator.)
• Trustee: This is the person (or entity) who manages the trust. The trustee holds legal title to the trust assets and must handle them according to the trust’s terms and the law. The trustee’s job is to act in the best interest of the beneficiaries. They invest assets, keep records, file taxes, and give out money or property to the beneficiaries as instructed. Think of the trustee as the “manager” or caretaker of the trust.
• Beneficiary: This is the person or people who benefit from the trust. They have the right to receive income or principal from the trust as the trust document outlines. In a family trust, your children might be beneficiaries. Some trusts have multiple beneficiaries (like several siblings or generations). The trustee must treat all beneficiaries fairly.

These roles can sometimes overlap. For instance, in a revocable living trust, the settlor often also serves as the trustee (and is usually also the beneficiary during their lifetime).

Imagine Jane sets up a revocable trust for her own assets – she can be the settlor, act as the trustee managing those assets, and still use the money (making her a beneficiary of her own trust). This arrangement is common for living trusts; it lets people manage their assets seamlessly while alive, and a successor trustee takes over only when they die or become incapacitated.

However, in other trusts (especially irrevocable trusts set up for estate tax planning, asset protection, or benefiting others), the settlor usually cannot be the trustee. That’s because having the creator control everything might defeat the purpose of those trusts (for example, assets might not be protected from estate taxes or lawsuits if the original owner still has full control). In such cases, the trustee will be someone else – which brings us back to choosing who that should be.

Understanding these relationships is crucial. The trustee you pick will be interacting with beneficiaries and carrying out the wishes of the settlor (you). They are the bridge between the person who made the trust and the people who benefit from it. Now, let’s explore what responsibilities a trustee actually has.

Trustee Duties 101: What It Really Means to Hold the Keys to Your Trust

Being a trustee is not just an honor – it’s a serious legal responsibility. When you name someone as trustee, you’re handing them the “keys” to a vault that holds your beneficiaries’ inheritance or important assets. Here’s what that role entails:

Fiduciary Duty – the Highest Standard of Care: A trustee is a fiduciary, meaning they must act with utmost loyalty and care towards the trust beneficiaries.

By law, a trustee must put the beneficiaries’ interests above their own. They can’t use the trust assets for personal gain or take risky actions that aren’t in the beneficiaries’ best interests. If they do, they can be held personally liable. This fiduciary duty is the cornerstone of trustee responsibilities, whether under federal regulations or state laws.

Managing Assets Prudently: Trustees are responsible for managing and investing the trust’s assets wisely. In practice, this means following something like the “prudent investor rule” – invest as a sensible, cautious investor would. For example, a trustee shouldn’t gamble the trust fund on speculative stocks or neglect the investments entirely. Instead, they might use a balanced portfolio of stocks, bonds, or real estate depending on the trust’s goals and the beneficiaries’ needs. They may hire financial advisors to help, but the final responsibility rests on the trustee to supervise those investments.

Administrative Tasks: A trustee handles a lot of paperwork and deadlines:

• Keeping detailed records of every transaction (every dollar in and out of the trust).
• Providing accountings to beneficiaries (typically an annual report of the trust’s finances, unless the trust document waives this).
• Filing tax returns for the trust (trusts often need to file IRS Form 1041 each year for income taxes, plus any required state tax returns).
• Paying bills or expenses of the trust, like property insurance or maintenance if the trust owns a house, or legal fees if the trust consults an attorney.
• Following the specific instructions in the trust document, such as giving a beneficiary a certain amount of money at a certain age, or paying for a grandchild’s education as needed.

Distributing to Beneficiaries: Perhaps the most sensitive duty is making distributions to beneficiaries. Sometimes the trust gives clear rules (e.g., “pay $5,000 every month to my spouse”), but other times the trustee has discretion (e.g., “use the funds for my child’s health, education, maintenance, or support as needed”). Discretionary trusts give trustees power to decide when and how much to give, based on the trust’s guidelines. Using that discretion fairly and wisely is crucial. A trustee might have to say “no” if a beneficiary’s request isn’t allowed by the trust – and that can strain relationships. Good trustees communicate with beneficiaries and explain decisions, to manage expectations and avoid conflicts.

Impartiality: If there are multiple beneficiaries, the trustee must balance their interests impartially. For example, if a trust is set up to benefit both a surviving spouse and the children from a first marriage, the trustee has to be fair to both parties – not favor one side. This can be challenging if the beneficiaries’ needs conflict (one might want more income now, another wants the principal preserved for later). The trustee must walk a tightrope and often make tough calls in an unbiased way.

Following the Law and the Trust Document: Trustees must know and follow the terms of the trust and the legal standards. If the trust says “do X, then Y,” the trustee must do that. But if the trust says something that’s legally impossible or harmful, the trustee may need to consult a court or trust lawyer. Moreover, every state has default trust laws (like notice requirements, or how to handle uncooperative beneficiaries) that the trustee should comply with. If the trust is under court supervision (some trusts, especially testamentary trusts created by a will, might need to report to a probate court), the trustee also answers to the judge.

In short, being a trustee means wearing many hats: financial manager, accountant, mediator, and loyal guardian of the trust’s purpose. It’s a job that can last for many years. This is why picking the right person or institution to serve as trustee is so crucial. The best candidate will understand these duties or be willing to learn fast (and seek professional guidance where needed).

Now that we know what’s expected of a trustee, let’s look at the legal framework they operate in – starting with federal law, then diving into how state laws can differ.

Federal Law and Trusts: National Standards & Tax Rules

Trust law is primarily state law, but federal law still plays a role. It’s important to grasp these federal aspects when choosing a trustee, because they affect how any trustee must perform.

Uniform Standards Across States: First, understand that many states have adopted a common framework called the Uniform Trust Code (UTC). As of now, a majority of states follow some version of the UTC, which spells out standard trustee powers and duties (like that fiduciary duty we discussed, investment standards, accounting requirements, etc.). While the UTC itself isn’t a federal law, it creates a lot of consistency nationwide. If your state follows these modern uniform laws, an individual serving as trustee in that state will have similar obligations to one in another UTC state. (A few states haven’t adopted the UTC, but even there, traditional trust principles and other statutes impose similar responsibilities.)

Federal Tax Obligations: No matter what state law applies, every trustee must deal with federal taxes. Trusts (except very simple grantor trusts) are considered separate tax entities by the IRS. Your trustee will need to get an Employer Identification Number (EIN) for the trust and file annual federal income tax returns for it. For example, if a trust earns interest, dividends, or rent, the trustee must report that income to the IRS and pay any taxes due from the trust assets. If the trust distributes income to beneficiaries, the trustee issues K-1 tax forms to those beneficiaries so they can report it on their own returns. All of this means your trustee should be comfortable handling tax matters or hiring a qualified tax preparer. A mistake in tax filing can lead to IRS penalties, so a detail-oriented trustee is a must.

Federal Regulations for Professional Trustees: If you choose a bank or trust company as your trustee, there’s an extra layer of federal law in play. Banks that act as trustees are regulated by federal agencies (like the Office of the Comptroller of the Currency for national banks) under laws such as 12 CFR 9. These regulations require banks to segregate trust assets, avoid conflicts of interest, and sometimes have certain committee approvals for big decisions. The upside is that professional trustees operate in a tightly regulated environment designed to protect you and your beneficiaries. If you name a friend or family member as trustee, they won’t have a federal regulator watching them – but they will still be bound by state law and the trust’s terms.

U.S. vs. Foreign Trustees: Here’s a federal twist that people sometimes overlook: if your trustee is not a U.S. person (for example, you name a relative who lives abroad or a foreign trust company), your trust could be treated as a foreign trust for U.S. tax purposes. That carries complex reporting requirements and sometimes less favorable tax treatment. In general, to keep things simple and avoid IRS complications, you’ll want your trustee (or at least the majority of your co-trustees) to be U.S. residents if you’re creating a trust in the U.S. This ensures the trust is considered a domestic U.S. trust. It’s a small detail with big consequences – the IRS has special forms (like Form 3520) for foreign trusts, which are a headache. So, choosing a U.S.-based trustee is usually wise unless you have a specific reason to do otherwise.

Federal Estate and Gift Tax Considerations: While the estate tax is something the settlor deals with (when transferring wealth into certain trusts or at death), the trustee might be involved in strategies to minimize those taxes. For instance, if your trust is part of a generation-skipping transfer (GST) tax plan (passing assets to grandkids), the trustee will allocate payments in a way that follows the plan. If the trust is a charitable trust (like a Charitable Remainder Trust), the trustee must ensure payouts meet the IRS rules to maintain the trust’s tax-advantaged status. These are niche areas, but if your trust has a tax strategy angle, it argues for a trustee with some sophistication in finance or access to professional advice.

Bottom line: Federal law sets the playing field for taxes and regulatory compliance. Any trustee you pick should be equipped to handle these nationwide requirements. Next, let’s zoom into the state level – where the day-to-day rules of trust management are set, and which can vary significantly depending on your jurisdiction.

📍 Location Matters: How State Laws Impact Your Trustee Choice

While federal rules provide the backdrop, state laws are the heart of trust governance. The rules can differ from one state to another, which means where your trust is based (and who you choose as trustee) can affect how the trust operates. Here are some key state-level nuances to consider:

Trustee Eligibility and Requirements: In most states, almost any competent adult can serve as a trustee. There usually aren’t licensing requirements for an individual (your brother, friend, or adult child could serve without any special permit). However, some states have quirks – for example, a few states require non-resident trustees to post a bond or have a local resident co-trustee for certain types of trusts. This is a precaution to ensure an out-of-state trustee doesn’t mishandle assets and disappear. If you’re naming someone who lives far away, it’s worth checking your state’s rules. For instance, Florida allows out-of-state individuals to be trustees freely (Florida is actually more restrictive about out-of-state executors of wills, not trustees), whereas New York might require an out-of-state trustee to consent to the jurisdiction of New York courts. Knowing these details can save headaches.

Governing Law and Trustee’s Location: Often, the trust document will state which state’s law governs the trust. You might live in California but specify Delaware law for your trust because Delaware is known for its favorable trust statutes. Typically, for a trust to be administered under a certain state’s law, it helps if at least one trustee is based in that state. So, if you pick a trustee in a state with great trust laws, your trust might benefit from those laws. Why does this matter? Some states have laws that are more trustee-friendly or grantor-friendly:

• Perpetual Trusts (Dynasty Trusts): States like Delaware, South Dakota, Nevada, and Alaska allow trusts to last for hundreds of years or even indefinitely. In contrast, some states (like California or New York) still limit how long a trust can last (often around 90-150 years due to the “rule against perpetuities”). If you want your trust to benefit generations without forced termination, you’d lean toward a trustee in a state that permits dynasty trusts.
• Asset Protection Trusts: A handful of states (including Nevada, South Dakota, Delaware, Alaska, and a growing list of others) allow self-settled asset protection trusts, where the settlor can also be a beneficiary and still shield assets from their creditors. To use these laws, you typically must have a trustee (often a corporate trustee) in that state. So if you’re creating a trust for asset protection, you might choose a trustee located in a state like Nevada to gain the benefit of that state’s strong protective laws.
• State Income Tax: States tax trust income differently. For example, California will tax a trust’s income if the trustee or a beneficiary is a California resident in many cases, which can be a hefty 13.3% tax hit on top of federal taxes. But states like Florida, Texas, or Nevada have no state income tax at all. By having your trust administered (i.e., managed by a trustee) in a no-tax state, you might legally avoid state income tax on the trust’s earnings. High-net-worth families often intentionally pick a trustee in a state like Delaware or South Dakota not just for the laws, but also to reduce state tax drag on trust growth. (Of course, when beneficiaries receive distributions, they may pay taxes in their own state, but meanwhile the trust can grow tax-free at the state level.)
• Trust Privacy and Court Supervision: Some states require more court oversight than others. For instance, a testamentary trust (created through a will at death) might be under ongoing probate court jurisdiction in one state but not in another. States like California generally try to avoid constant court interference if the trust document gives powers to the trustee. But if you’re in a state that does require periodic court accountings, you’ll want a trustee who can handle that formality (usually a professional or someone very diligent).
• Ease of Trustee Replacement: State law also dictates how and when trustees can be removed or replaced. Under the Uniform Trust Code (adopted in many states), beneficiaries can petition to remove a trustee who is unfit or if it’s in the best interest of the trust (even without a major breach, sometimes). Some states allow the trust document to give someone (like a trust protector or a majority of beneficiaries) the power to replace a trustee without going to court. When choosing a trustee, consider how easy it will be to change course if things don’t work out. If you set up the trust in a state with flexible removal statutes, naming a trustee is a bit less fraught – because you have an escape hatch if they underperform. In more rigid environments, you better be very sure of your pick.

Example: Let’s say you live in Arizona (a UTC state with modern trust laws) but you’re establishing a dynasty trust for your descendants. You might choose a trust company in South Dakota as trustee so your trust can last indefinitely and avoid state income tax, applying South Dakota law. Conversely, if you have a simple trust for a relative and you live in New York, you might just choose a New York-based individual as trustee to keep things local, knowing New York law will apply (which is fine for straightforward trusts).

The key takeaway is state laws can give your trust certain advantages (or impose constraints). Your trustee’s location often determines which state’s law applies. So, part of “who should be the trustee” is thinking about where that trustee is. Many estate planning attorneys advise their clients to leverage states like Delaware or Nevada when appropriate by using trustees based there, especially for larger or more complex trusts.

Now that we’ve covered the legal landscape, let’s talk about the types of trustees you might choose – family, friends, or professionals – and the pros and cons of each.

Family vs. Professional Trustees 🤔: Pros, Cons & Surprising Truths

When picking a trustee, you generally have two broad categories:

1. An individual (like a family member or friend, or a trusted advisor), or
2. An institution (like a bank or trust company).

There’s also a middle ground: a professional individual fiduciary (for example, a lawyer or accountant who routinely serves as a trustee for clients, or a licensed private trust fiduciary). Each option has its merits and drawbacks. Let’s break them down.

To make it clearer, here’s a comparison table of common trustee choices:

Some surprising truths to note:

• “Free” isn’t always free: A family member might not charge a fee, but if they mismanage funds due to inexperience, it can cost the family dearly. Also, an unpaid trustee might put the job low on their priority list, causing delays or mistakes.
• Professional doesn’t mean impersonal: A hired individual (like an attorney) can actually develop a close rapport with the family. Sometimes they knew the settlor well or have helped the family for years. They can combine expertise with a personal touch.
• Institutions can fire themselves: Interestingly, many modern trust companies include “self-removal” clauses – if a trust becomes too small or not profitable for them, they might resign. It’s not common, but it happens. That’s why even with a corporate trustee, you name a successor trustee just in case.
• Mix and match: You aren’t limited to one trustee at a time. Some people use co-trustees, pairing a family member with a professional or corporate trustee. For example, a trusted adult child and a bank could serve together – the child knows the family’s needs, and the bank provides technical know-how and stability. We’ll discuss co-trustees more later, but keep in mind this hybrid approach can offer the “best of both worlds” (though it can also introduce complexity).

Choosing between these options depends on your specific situation: the size of the trust, the complexity of assets (does the trust own just a house and some stocks, or a whole business?), the personalities involved, and the goals of the trust. If in doubt, it’s wise to consult with an estate planning attorney or trust advisor who can weigh in on what kind of trustee is appropriate given your context.

Next, let’s consider what qualities to look for in any trustee candidate, whether that’s Cousin Alice or ABC Trust Company.

Top 7 Qualities of a Great Trustee 👍

Whether you go with Uncle Joe, Attorney Smith, or Big Bank Trust Co., the best trustees tend to share common characteristics. Here are seven top qualities that define an ideal trustee:

1. Integrity and Trustworthiness: The word “trust” is in the name for a reason. You need someone who is honest, ethical, and can resist any temptation to misuse funds. This person will literally hold assets that aren’t theirs – and must consistently act in others’ best interests. If you have even a hint of doubt about someone’s integrity, they should not be your trustee.
2. Financial Competence: A good trustee doesn’t need to be a stock market wizard, but they should be comfortable dealing with money matters. They should understand basic investing, budgeting, and the responsibility of paying bills and taxes on time. If the trust is large or complex, they should know how to read financial statements or be wise enough to hire professional advisors for help. An eye for prudent investment and an understanding of what the trust’s assets require (e.g., maintaining real estate, or managing a portfolio) are key.
3. Impartiality and Fair Judgment: The trustee must treat beneficiaries equitably and make decisions without favoritism. If you have multiple beneficiaries, the trustee can’t be seen as taking sides. For example, if one beneficiary is the trustee (like one sibling trustee for another), they must be able to step out of their self-interest when making calls. The ability to stay objective and stick to the trust’s instructions, regardless of personal feelings, is crucial.
4. Organizational Skills: Managing a trust can involve a lot of paperwork and deadlines. A stellar trustee is organized and detail-oriented. They keep clear records, maintain a calendar of tasks (like “tax return due by April 15” or “annual distribution every December 31”), and generally prevent things from slipping through the cracks. Sloppy bookkeeping or missed deadlines can lead to legal or tax troubles. If your potential trustee is someone who loses their keys every week or can’t balance their own checkbook, that’s a red flag.
5. Communication Skills: A great trustee communicates well with all involved parties – beneficiaries, co-trustees (if any), and sometimes courts or lawyers. They should be able to explain the trust’s status to beneficiaries in plain language and be responsive to reasonable inquiries. Good communication can prevent misunderstandings. For instance, if a beneficiary asks for extra funds, a good trustee will either accommodate within the trust’s terms or politely explain why they can’t, possibly suggesting alternatives. The worst thing is a trustee who goes silent, leaving beneficiaries in the dark.
6. Availability and Longevity: The trustee should have the time and availability to actually do the job. Sometimes people pick an elderly parent or a busy CEO friend out of respect, but if that person is swamped or nearing an age of declining health, they might not be able to serve effectively (or for long). Ideally, pick someone who is likely to be around and capable for the duration of the trust. If the trust could last decades, consider a younger candidate or a stable institution. At the very least, ensure there’s a succession plan (we’ll touch on that next).
7. Knowledge of (or Willingness to Learn) Trust Laws: This one comes with a caveat – many laypeople won’t know trust law specifics, but a good trustee is willing to learn and consult professionals. They should know their limits and seek advice from attorneys, tax advisors, or trust administrators when needed. If you have a candidate who thinks they know everything and won’t ever ask for help, be cautious. Humility and a commitment to get things right by collaborating with experts can distinguish a decent trustee from a great one.

When evaluating potential trustees, use this list as a guide. For example, you might trust your two children equally, but realize one is much more organized and financially astute than the other – that child might be the better choice (or perhaps you involve both, but assign roles accordingly). Or you might weigh a corporate trustee: they certainly tick the boxes for impartiality, organization, and longevity, but maybe less so on personal communication or intimate understanding of family dynamics.

In practice, no single candidate is perfect, but aim for the best balance of these qualities. You can also compensate for weaknesses by surrounding the trustee with support: for instance, if your trustee is great with honesty and fairness but not investment-savvy, your trust can explicitly allow them to hire an investment advisor to manage the portfolio. What you want is a trustee who is wise enough to use those resources appropriately.

Co-Trustees & Successors 🤝: Teamwork and Continuity in Trust Management

Estate planners often say, “hope for the best, but plan for the worst.” When it comes to trustees, this means considering backups and even shared responsibility to safeguard your trust’s future.

Co-Trustees (Team of Trustees): You don’t have to choose just one person or entity as trustee. You can name two or more co-trustees to serve together. For example, you might appoint your sister and your spouse as co-trustees, or a family member and a professional trustee together. The idea is to combine strengths:

• A family member co-trustee provides intimate knowledge of family circumstances and perhaps a personal touch with beneficiaries.
• A professional or corporate co-trustee provides expertise, experience, and neutrality.

Together, they can balance each other out. Co-trustees can also serve as mutual checks and balances – it’s less likely that funds will be mismanaged if two sets of eyes must approve major decisions.

However, co-trustees require coordination:

• Joint Decision-Making: Unless the trust says otherwise, co-trustees usually must agree on decisions or act jointly. This can slow things down. If one co-trustee is slower or less responsive, the trust’s admin could bog down. Some trusts allow a majority decision (e.g., 2 out of 3 trustees can act if the third disagrees) or assign areas of responsibility to each (like one manages investments, the other handles distributions). Clear instructions in the trust document can mitigate potential stalemates.
• Conflict Risk: If co-trustees don’t get along or have very different views, it can lead to deadlock or even legal disputes. Imagine two siblings as co-trustees who already have rivalry – that could be a recipe for trouble. So choose co-trustees who are likely to cooperate or who understand they have to act professionally.
• Extra Logistics: With co-trustees, simple tasks might need both signatures. Many banks and financial institutions require all listed trustees to sign off on opening accounts or making transfers, unless the trust explicitly allows one to sign alone. This is a minor hassle, but worth noting.

In summary, co-trustees can be a great solution to leverage multiple people’s strengths and ensure oversight, but you must pick the right combination and set clear rules in your trust document to prevent gridlock.

Successor Trustees (Backup Plans): Perhaps even more important than co-trustees is naming successor trustees. A successor trustee is like the understudy ready to step in if the first trustee can’t perform. Life is unpredictable – your chosen trustee might:

• Decline to serve when the time comes (maybe they’ve moved abroad or have health issues and feel they can’t do it).
• Start serving but later resign (due to workload, personal conflicts, or other reasons).
• Become incapacitated or pass away (if an individual).
• In the case of a corporate trustee, merge into another company or decide to exit the trust business.

By naming a successor (or even a chain of successors, e.g., “If X can’t serve then Y, and if Y can’t then Z”), you ensure the trust isn’t left hanging. If no named successor is available, typically a court will appoint a trustee, but that means you lost control over the choice – it could be someone who doesn’t know your family or charges high fees. Better to handpick backups now.

When naming successors, apply the same criteria as choosing the initial trustee. Some people use a tiered approach: maybe you really want your sister as trustee while she’s able, but long-term (after she’s gone or if the trust continues into the next generation), you trust a bank to take over. So you might name your sister as initial trustee and a trust company as the successor. That way you get personal management first, and institutional continuity later.

Trust Protector or Removal Powers: A sophisticated backup mechanism is to appoint a trust protector – a person (not a trustee) who has certain powers like removing a trustee or appointing a new one under circumstances. For example, you might say the trust protector (perhaps a trusted friend or advisor) can replace the trustee if they become incapacitated or if beneficiaries unanimously request a change. This is an extra layer of flexibility: the trust protector can step in if the trustee isn’t working out and swap them, without going to court. It’s a way to indirectly have a “backup” plan that can adapt to unknown future situations. Not every trust needs a protector, but for long-term trusts or where you foresee changes might be needed, it’s worth discussing with your lawyer.

In short, always have a Plan B (and C) for who manages your trust. When drafting your trust, invest thought into “what happens if my first choice can’t do the job.” A little planning upfront can save your beneficiaries a lot of trouble later.

Common Mistakes to Avoid 🚫 When Choosing a Trustee

Selecting a trustee is a decision rife with potential pitfalls. Here are some common mistakes people make – and how to avoid them:

• Picking Someone Out of Obligation or Guilt: Don’t choose a trustee simply because you feel you “should” (e.g., naming your eldest child just because they’re the oldest, or choosing a sibling because they expect it). The trustee role is not a token of honor; it’s a job. Always prioritize capability and willingness over birth order or feelings. Avoidance: Have frank conversations with family if needed – explain that you chose the person best suited for the role, which ultimately benefits everyone.
• Assuming a Family Member Will “Figure It Out”: Many people underestimate the complexity of trust management. They think, “My brother is smart, he’ll figure it out,” and dump a huge workload on an unsuspecting relative. The result can be missed tax filings, investment blunders, or legal mistakes. Avoidance: If you’re considering a non-professional, make sure they understand what’s involved. Offer to pay for them to consult with an attorney or financial advisor periodically. Or, if things seem too complex, reconsider a professional trustee before it’s too late.
• Overlooking Potential Conflicts of Interest: A classic error is naming one sibling as trustee of a trust for multiple siblings. That can work, but if that trustee sibling is also benefiting from the trust, or has a very different financial mindset than the others, resentment can brew. Similarly, naming your second spouse as trustee of a trust for your children from a first marriage can be a conflict waiting to happen – their interests may not align. Avoidance: Try to foresee where loyalties might be divided and either avoid those setups or put in checks (like co-trustees or detailed instructions in the trust to guide contentious decisions).
• Failing to Name Alternates: We can’t stress this enough – not naming at least one successor trustee is a mistake. People often just pick one person and assume they’ll always be there. If that person can’t serve, the family may have to go to court to get a new trustee appointed. That costs time and money, and the court might not pick who you would have wanted. Avoidance: Always name backup trustees in your document, even if you think your first choice is rock solid. And if your trust is meant to last many years, periodically review and update these choices as people’s lives change.
• Ignoring Professional Help Entirely (to Save Money): Being frugal about trustee fees is understandable – nobody wants unnecessary costs. But sometimes the penny-wise choice is pound-foolish. For example, not hiring a professional trustee or co-trustee to save on fees could backfire if an inexperienced trustee makes a mistake that costs the trust thousands. Or perhaps they fail to invest funds properly, and the trust underperforms by tens of thousands over years – dwarfing any fees saved. Avoidance: Evaluate the trust’s size and complexity. If it’s modest and straightforward, a family trustee might be fine. If it’s large or complicated, consider at least having a professional co-trustee or an advisory role. Many trust companies will even serve as agent to an individual trustee (meaning they handle the heavy lifting behind the scenes, and the individual is the face), which can be a compromise.
• Not Communicating the Choice: Sometimes settlors keep their trustee choice a secret or assume it’ll all be sorted after they’re gone. This can lead to surprise and conflict when the time comes. The person named might be shocked or feel unprepared, and other family members might second-guess the choice and cause drama. Avoidance: If possible, discuss your decision with both the chosen trustee and the key beneficiaries ahead of time. Make sure the trustee is willing and understands your trust’s purpose. This conversation can clear the air and also serve as a mini-training session – you can convey your hopes and values about the trust’s use. If you anticipate pushback (say, one child is trustee and another might be jealous), you can also explain your reasoning to avoid misinterpretations (e.g., “I chose Anna because she’s local and good with paperwork, not because I love her more”).

Avoiding these mistakes comes down to thoughtfulness and open eyes. Don’t treat the trustee selection as a quick item to check off – it deserves as much careful thought as who gets what in your estate.

True Stories: The Right Trustee vs. the Wrong Trustee

Sometimes the impact of choosing a trustee becomes crystal clear only through real-life outcomes. Let’s look at two contrasting scenarios that highlight why this decision is so critical:

Story 1 – The Cautionary Tale: The Smith Family Trust Fiasco
John Smith left a sizable trust for his three children. He named his eldest, Alice, as the sole trustee because “she’s the oldest, so she’ll know what to do.” Alice had no financial background but tried her best. Unfortunately, her siblings often questioned her decisions. One brother felt she was too stingy with distributions; the other thought she was investing the funds too conservatively. Alice, feeling attacked, started avoiding communication. Small disagreements escalated into full-blown mistrust. Eventually, the brothers took Alice to court, accusing her of mismanaging the trust (even though there was no theft – just differences in opinion and some minor mistakes in accounting). The legal battle drained the trust’s assets. By the time it ended, the once-close siblings were estranged, and, shockingly, more than half of the trust money had been spent on attorney fees. This scenario echoes a real case where litigation costs devoured 85% of a trust’s assets, leaving only 15% for the beneficiaries – a nightmare outcome. The Smith family’s story shows that a poorly chosen trustee (without support or proper planning) can lead to exactly what the trust was supposed to prevent: conflict and loss of wealth.

Story 2 – The Success Story: Grandma Lee’s Thoughtful Choice
Margaret “Grandma” Lee had a modest fortune and a deep love for her two grandchildren, whom she raised. She set up a trust to provide for their education and future. Knowing that money can sometimes spoil relationships, she did something wise: she named a trusted family friend and her bank’s trust department as co-trustees. The family friend, Uncle Ray, had known the grandkids since they were born and understood Grandma Lee’s values of hard work and modesty. The bank brought professional investment skills to grow the trust prudently. Over the years, this team worked wonderfully. When the grandkids wanted funds (for college, then later to help buy a first home), Uncle Ray would discuss it with them, impart a bit of Grandma’s advice (“She’d want you to be responsible…”), and the bank co-trustee would handle the paperwork and ensure the request fit the trust’s terms. Every decision was documented and transparent, so neither grandchild felt favoritism – distributions were based on needs and equalizing their opportunities. By the time the trust wound down (at age 30 as the trust directed), both beneficiaries had advanced degrees, no student debt, and even a remaining nest egg each – exactly as Grandma intended. They remain close with each other and still occasionally thank Uncle Ray for his guidance. In this case, the careful choice of co-trustees maintained family harmony, protected the assets, and achieved the trust’s goals without any drama.

Lesson: A well-chosen trustee (or trustee team) acts like the rudder of a ship – quietly keeping the voyage on course. A poor choice can be like a cracked hull, causing the whole ship to sink. By considering the factors we’ve discussed – the legal context, the nature of your assets, the personalities involved, and the trustee’s qualities – you can increase the odds that your trust sails smoothly for the long haul, providing for your loved ones as you intended.

Now that we’ve covered the ins and outs of choosing a trustee, let’s address some frequently asked questions that often come up in this process.

FAQs about Trustees and Trusts

Q: Can the person who creates the trust also be the trustee?

Yes – if it’s a revocable living trust, the trust creator (settlor) can also be trustee. For irrevocable trusts, the settlor usually should not serve as trustee.

Q: Can a beneficiary also be a trustee of the same trust?

Yes. A beneficiary can be a trustee, but they must act impartially and strictly follow the trust’s rules to avoid any conflicts of interest or tax problems.

Q: How many trustees should a trust have?

A trust can have one trustee or several. Often one is enough; some trusts appoint 2–3 co-trustees. Always name at least one successor trustee as a backup if the initial trustee can’t serve.

Q: Do trustees get paid, and how much?

Trustees are entitled to reasonable pay unless they waive it. Family trustees often serve free. Professionals and corporate trustees charge fees (usually a percentage of assets or an hourly/flat rate).

Q: What if the trustee I chose can’t serve or something happens to them?

If your primary trustee can’t serve, your named successor takes over. This is why you should name backups. If no successor is listed, a court will appoint a replacement trustee.

Q: Can I change the trustee of my trust after it’s set up?

For a revocable trust, yes – you can change the trustee anytime while alive. For an irrevocable trust, it’s more complicated and usually requires either a trust provision or court approval.

Q: Does my trustee have to live in the same state as me or the trust?

No. The trustee can live in any state. However, the trustee’s location can affect which state’s laws and taxes apply, so sometimes an out-of-state trustee is chosen for legal or tax benefits.

Q: Can I appoint multiple trustees and allow them to act separately?

Yes. You can name co-trustees and even allow them to act independently if the trust document clearly permits it. Otherwise, co-trustees are generally required to act jointly by default.

Q: What is a trust protector, and should I name one?

A trust protector is a person given special powers over the trust (like replacing a trustee or adjusting terms). They add flexibility. Useful for complex, long-term trusts; probably not needed for a simple trust.