In the section entitled “So You Want To Be Your Own Trustee” I described for you many of the tasks you will face as trustee of the trusts that will be set up at the first death of either you or your spouse.  Your reaction to this description of your job as trustee following the first death was probably one of concern about your ability and willingness to take on this job. 

A question that might have occurred to you in reading “So You Want To Be Your Own Trustee” is why haven’t I been told all this before?  You probably have not been told because the vast majority of the estate planning advisory community is not aware of the “facts of life” with respect to being a trustee.  The use of trusts in the estate planning, except for the very, very wealthy, is a relatively new phenomenon.  The use of trusts in estate planning has only become popular in the last 20 years or so.  The vast majority of estate holders, who have utilized trusts in their estate planning, have not yet died.  So there has been little or no first-hand experience actually living with the implementation of these trusts.  The estate and financial planning community is just now experiencing the death of their clients who have set up trusts as part of their estate plans.  

We are only now experiencing the impact of the elegant designs that have been created to avoid estate taxes and probate.  Like any other life experience, you are often uncertain that what you are experiencing for the first time is a “one-time” event or one that is likely to repeat itself over time.  Also, the full impact of being your own trustee is felt on a cumulative basis.  In other words, the duties, obligations and tasks do not seem too overwhelming at first, but over time they become more burdensome. Some of us in the advisory community have had clients die some years back, and their survivors have been living with the results of the estate planning for some years now.   However, the full impact of what it means to live with the results of the planning is just now accumulating to the point of hitting home.

Based upon these life experiences I have some suggestions for handling the realities of “being your own trustee”.  These suggestions can be divided into two distinct time periods:  Before the First Death and After the First Death.  However, before I get to my suggestions a little background information might be helpful.

You need to know that I am not, in any way, calling into question the efficacy of using trusts in your estate planning.  Avoiding probate is most often (but not always) an important planning objective.  The use of trusts is usually the best way to avoid probate.  Avoiding estate taxes, for those clients who reach this threshold, is still a very important planning objective.  The estate tax law changes in 2002 probably have not changed the importance of this objective.  We will not know for certain until Congress changes the law again or we reach 2011, whichever comes first.  The use of trusts is still the best way to diminish the impact of estate taxes, unless you want to give away your assets before death that might be subject to estate taxes.  Also, as mentioned in the Introduction to this series of articles, the use of trusts to provide for the continuing management of your financial affairs in the event of incapacity, is an important objective.  So, the use of trusts in your estate planning is every bit as important and useful as it has ever been.  With that as background, I will now delineate my suggestions on how to deal with the implications of being your own trustee.

BEFORE THE FIRST DEATH
As was mentioned in the section “So You Want to Be Your Own Trustee” there is no reason not to be your own trustee(s), during your joint lifetimes.  Your ability to do as you please without all the restrictions and obligations that come into play after the first death is not affected in any way.  The only situation that might impact your ability to serve as trustee is if both spouses become disabled or incompetent before death or your want a third party to oversee the management of your finances for any reason. 

Recommendation:  Be sure your trust document allows for the appointment of another trustee in the event of your disability and/or incapacity for any reason.  Under these circumstances it might be important to have the services of a corporate trustee available.  If so, you might want to use the provisions described below for a surviving spouse to use a corporate trustee as a co-trustee or as agent of the trustee.  As an alternative, this trustee might be another family member or trusted friend.  If so, you might want to, again, use the provisions described below for a surviving spouse to use a corporate trustee as a co-trustee or as an agent of the trustee.

AFTER THE FIRST DEATH
Rather than leaving the surviving spouse with the sole responsibility of being the trustee of the two or three trusts that are set up at the first death, there are three alternatives:

• Appoint a Corporate Trustee as Sole Trustee
• Appoint a Corporate Trustee as Co-Trustee with the Surviving Spouse
• Allow for the Appointment of a Corporate Trustee as the Trustee’s (Surviving Spouse) Agent. 

A variation on these three is to allow the Surviving Spouse/Trustee the authority to appoint a Corporate Trustee to any one of the three roles previously mentioned.

Before I describe these three alternatives it might be important to discuss the pros and cons of corporate trustees.  In the article entitled “So You Want To Be Your Own Trustee” I listed five reasons not to have a corporate trustee.  I will highlight three of those reasons in this section:

1. They will interfere with and perhaps even cause you to terminate one or more of the trusted relationships you have with your other advisors.  Large corporate trustees, under the guise of their fiduciary liability and responsibilities, will want to take over the role of your investment advisor.  They might even want to take over the role of your financial planner.  They might restrict your relationship with your attorney and CPA.  By the time of the death of the first spouse you probably have had trusted relationships with advisors in each of these areas for sometime.  You would not want to interrupt or restrict these relationships.
2. They are expensive.  Depending on the size of the trust, they can charge up to 1 ½% of the trust assets to act as trustee.   They also charge separate assets management fees and fees for any accounting and legal services they might provide.  It can be less expensive to unbundle these services and hire them separately yourself.
3. They are impersonal and detached.  Unlike the trusted advisory relationships you have developed over time, you will likely (unless your trust exceeds multiple millions) deal with an 800 number and the keypad on your phone or computer or, at best, a low ranking employee who is frequently replaced.    Furthermore, it is likely, that the office in which this 800 number or low ranking employee resides, is in some major money-center, hundreds of miles away, if not many states and a couple of time zones away.

Fortunately, there is a new breed of trust company coming into the market place that is willing to “unbundle” the usual trust service package.  These companies will take on the fiduciary role of trustee, but allow you to maintain all of the trusted relationships you have established over the years with other advisors.  Even more, they will do so at a very competitive fee structure.  At the end of this section I will describe some selection criteria for choosing a corporate trustee from this new breed of trust companies.

The description of the three alternatives mentioned above presumes the existence and use of one of the new breed of trust companies.

1. Appoint a Corporate Trustee as Sole Trustee: You may make the determination now, well before the death of the first spouse, that the surviving spouse (whoever it is) will not want to be trustee.  In that case you should name a Corporate Trustee in the document now.  Assuming that it is one of the new breeds of trust companies, you will also want to name an investment advisor to the trust. 

There is one big area of risk associated with the appointment of corporate trustee as sole trustee regardless of when and how it is accomplished.  That is, the surviving spouse, who is the income beneficiary and who may have once been the trustee, could become unhappy with the corporate trustee.  Furthermore, the Decedent’s Trust is irrevocable and, as a result, the trustee can’t be fired – at least very easily and not without a lot of expense.  To protect against this, you can have someone named in the trust, other than the surviving spouse/income beneficiary, who can fire the trustee.  This is called a Trust Protector.  This person could be a trusted advisor or friend or a child.

Recommendation:  Do not use this alternative.  You never know what the surviving spouse will want after the death of their spouse.  The surviving spouse may well want to play a major role in the management of the trust.  If so, this alternative would not work. If you appoint a Corporate Trustee as sole trustee, consider naming a Trust Protector who has the right to terminate the Corporate Trustee and appoint a replacement Corporate Trustee.

2. Appoint a Corporate Trustee as Co-Trustee with the Surviving Spouse: You may make the determination now that the surviving spouse will want to play a prominent role in the management of the trust, but not be burdened with the nitty gritty responsibilities that a professional is better equipped to handle.  The surviving spouse would set policy and give input to the corporate trustee on the dynamics of interfamily relationships, etc.  If there are some family relationships that are not as firm or as favorable as you would like, it might be very helpful to have an impersonal corporate trustee in the picture to “blame” the decisions on.  Consequently, when the surviving spouse wants to invade principal, the corporate trustee will have to agree.  This gives the surviving spouse “cover” if anyone questions it later.  The corporate trustee would be in a position to help the surviving spouse evaluate the performance of other advisors to the trust and again, give him or her cover if he or she wants to terminate one of them.  They could also dissuade the surviving spouse from doing so, if in fact, the advisors are doing a good job.  The surviving spouse would have an impersonal third party to help them evaluate the performance of other advisors to the trust. 

Recommendation:  Maybe use this alternative.  When the time comes, the surviving spouse may or may not want to share the role of trustee.  One spouse might well have a different view as to what their role should be than the other would at that time.  It is hard to tell before the time comes.  If the surviving spouse wants the comfort of a professional corporate trustee, word your trust document so that she or he could appoint one (rather than appointing one in the document before the first death) – and terminate them by appointing another one to replace them.

3. Allow for the Appointment of a Corporate Trustee as the Spousal Trustee’s Agent: This alternative allows for the greatest flexibility on the part of the surviving spouse in their role as trustee.  They could appoint a corporate trustee as their agent from day one or wait to find out if they really want to take on all the responsibilities of trustee.  The primary negative to this alternative is that the surviving spouse still has all the fiduciary responsibilities associated with being trustee.  So, if and when, they invade the Decedent’s Trust to take a principal distribution, they will be fully exposed to the impact of anyone second-guessing them later on.  We would not recommend this alternative unless all the family relationships are healthy and favorable.  If there are children from more than one marriage this is probably not a good choice.  If there is any risk that one or more of the siblings or their spouses may be out of sorts with one or more of the others, this is not a good choice.

Recommendation:  If all the “down stream” or residual beneficiaries, and their spouses, of the trust get along well and if you and/or your spouse, as surviving spouse, is likely to want to exercise day to day involvement in the affairs of the trust, I would recommend this alternative.  If you choose this alternative, though, I would recommend that you include wording in the trust that would allow the surviving spouse/trustee to appoint a Co-Trustee instead of an agent.  This would give the trustee a way out of their role if needed or wanted, without giving up all say-so in the management of the trust.

In summary, I would recommend either Alternative 2 or 3 depending upon how much involvement a surviving spouse would like to have as trustee of the Decedent’s Trust and/or the QTIP Trust.

How should you select a corporate trustee?  All three of these alternatives involve the potential use of a Corporate Trustee.  First of all, choose one of the new breed of trustees that is willing to allow you to maintain your existing relationships with other trusted advisors.  In fact, they should not be in the investment management business or have a relationship with anyone who is.  They should not prepare income tax returns or offer any accounting services.  They should not provide any legal advice outside of their fiduciary role.  They should just be administrators that have the capacity to render fiduciary advice and opinions.  Outside of these general criteria they should also meet the following specific criteria:

1. They must be able to hold, as trustee, all the assets that you have in your estate such as real estate, limited partnerships, business interests and royalty interests.  You need to inform them of what is in your estate; to be sure they can hold all of these assets.  As the assets in your estate change, you need to keep them apprised of those changes.
   
2. They must be price competitive.  Their fees, when added to the fees of your other advisors, should not add up to more than the “old fashion” brick and mortar trustee charges.  Hopefully, it is even less.  In today’s world this means that they should not charge more than ½% annually on the value of the trust.  Also, they should not charge any fees on your personal property, including your home and perhaps, a secondary residence.
   
3. They must be accessible.  If you have a team supporting you along with a Co-Trustee or a Trustee’s Agent, you probably won’t have all that much contact with the corporate trustee.  In fact, your team will probably have more contact than you do.  However, when you do want to contact them, you want to be able to get to a senior person who is knowledgeable about your trust.  Also, you will want a person you can relate to.  So it would be important to establish, up front, that this is the case and that you feel comfortable with the person or persons you will be dealing with over time.

If you are intending to use one of the new breeds of trust companies or expect that the surviving spouse will act as trustee, you will want to appoint an investment advisor to the trust(s).  In the next section, you will learn about the necessity for the trustee to comply with the Uniform Prudent Investor Act.  This act puts a great responsibility on someone, such as the surviving spouse, who is not a practiced professional in the field of investments.  It is critical that the surviving spouse have the benefit of professional advice in this area of expertise.  Since the new breed of trust companies do not manage investment assets (or at least they shouldn’t), you will want to appoint an investment advisor to the trust(s).  It is likely that you will have established a trusted relationship with an investment advisor during your lifetime.  We would suggest that this is the person or party be named in the trust document.  It is important to note that the trustee always has the right to fire the investment advisor, if they are not doing their job properly or effectively.

Recommendation:  Appoint an investment advisor to the trustee.

While I was active in the financial planning world I stayed in continuous contact with the market place of trustee service providers.  As of 2002 there were only a handful of trust companies that offer services such as I have described in this article.  I am sure the number has expanded since then.  And I am sure that your financial planning profession can put you in touch with and help you select a trust company that fits the description in this article.