Choosing a trustee could very well be one of the most important financial decisions you make in your life, as you’re entrusting this person with critical obligations and responsibilities. That said, not much guidance is out there on what to look for in a good trustee.
We’ve all seen news stories featuring trustees behaving badly and misappropriating property. You have to wonder, were there any warning signs? In this guide, we’ll tell you some “green flags” and “red flags” to watch for when selecting a trustee.
What Does A Trustee Do?
It’s right there in the name—a trustee is a person in a position of “trust.” This term refers to an individual who takes legal ownership of assets held in a trust. The trustee assumes fiduciary duties and responsibility for carrying out the trust’s purposes and goals.
A trustee must manage those assets with diligence. A trust cannot be set up if there is no trustee appointed by the settlor. The trustee, including even a lawyer, who is appointed is entitled to reasonable compensation (usually 1% to 3% of trust assets, though that number varies).
Signs Of A Good Trustee
You, the settlor in this case, have quite the task at hand. Picking a good trustee requires you to find someone you trust to hold and administer the property diligently and reasonably. Here are qualities of a good trustee:
· Honesty. Simple question—does your proposed trustee tell the truth? Honesty about matters both large and small is very relevant to this critical job. You want a trustee that will be upfront about the trust’s assets and what they’re doing with them.
· Dependability. The trustee should be dependable. He or she should show up to meetings, take phone calls, and be a reliable person who communicates effectively and promptly.
· Organization. Being a trustee requires a lot of organization. You need to know dates and obligations and remember pieces of vital information. The more complex the trust, the more you need your trustee to be organized.
· Stability. Is the trustee’s life stable? Does he or she have a steady job? Are they constantly embroiled in personal conflict? Do they struggle with addiction? We all have our own problems, but there is a major difference between a person who is stable and reliable and one who is not.
· Financial Experience. It might be best to pick a trustee with some financial experience, at least when it comes to their own financial affairs. Oftentimes, a
trustee’s position is financially-oriented, so having experience in this sector is a good idea.
· Ability. Does your trustee have the time and energy to devote to this job? He or she should have a bandwidth that can accommodate this critical role.
· Impartiality. A trustee should treat everyone in the trust equally, showing no favoritism, regardless of his or her personal opinions.
These characteristics are all important in a trustee, and you should consider each in turn when appointing someone to this critical role.
Much like there are “green flags” when picking a trustee, there are also major red flags, too. You should, firstly, rely on your gut. Your potential trustee might have all the characteristics above, but, if you have a bad feeling about them, even an inexplicable one, think twice before appointing them.
Here are some common red flags that should bar a trustee from being considered:
· Prior Bankruptcies. Declaring bankruptcy is a big deal, and it means that someone is unable to manage their own financial affairs. This is a major red flag to watch for.
· Prior Foreclosures. Additionally, if your proposed trustee has prior foreclosures, this could indicate issues with money management. For most, their house is their biggest asset—what did this person do to lose it?
· Any Criminal History. Everyone deserves a second chance, but not everyone deserves to be your trustee. Run a simple background check on your proposed trustee, checking court dockets to see if there are criminal cases or lawsuits against them in local courts, whether closed or open.
· Lack Of Neutrality. If your proposed trustee seems to have very strong opinions about those in the trust (if they’re vindictive or a “side taker”), this could affect their impartiality.
· Dishonesty. Of course, the last thing you want is a trustee with a history of lying or obfuscation. Even small lies can easily become big, snowballing ones, especially in the world of finance.
The best way to ensure you’re picking a good trustee is to get some outside perspective. Contact a WFP attorney to decide who should be your trustee, as they can help you make this life-changing decision.