Estate Planning

One of the first questions to be asked is who is going to be the trustee. Or in other words, “Who do you trust?” It really all depends on the purpose of the trust. As we spoke last week about a very short term, limited purpose trust, the answer was almost automatic: Whoever seems the most available! But with longer lasting trusts, involving more significant assets and issues, the appointment of a trustee may well be the most important provision of the trust.

In the most common formal, written trust, the Revocable Living Trust, The Grantor (the one who creates the trust, AKA Trustor) is usually the initial trustee. After all, who do I trust more than me? But even with this trust, appointment of the trustee should not be automatic. And I should be careful in deciding whether I should accept the responsibility. As trustee, I will need to keep careful records of any transactions involving trust property in order that I can give reasonably frequent reports to the beneficiary or beneficiaries, the person or persons for whose benefit the trust is formed.

But wait, I thought that was me too!

Yes, most often in the Revocable Living Trust, the initial beneficiary is indeed the same person as the grantor. But you will not be the only beneficiary of this trust, else, what is the point of having created it? Even if your sole purpose is to avoid the expense and public nature of a probate process, your future beneficiaries will greatly appreciate your careful attention to the details of administration so that the records you have kept can answer the inevitable questions of what belongs to the trust, what are the trust obligations, and what changes have happened over the years.

So, let’s start with a few basic questions. First, who can be a trustee?  In Nevada, a trustee is a “person holding property in trust and includes trustees, a corporate as well as a natural person and a successor or substitute trustee.” NRS 163.020. So any entity that can hold property can be a trustee.

Second, what are the duties of a trustee, or in other words, what should a good trustee be able to do? Nevada Statutes outlines the powers of a trustee in Section 163.265 through 163. These powers described in these sections include:

• retention, selection, and disposition of assets, whether for direct use of the beneficiaries or as investments;
• the continuation of any business or farming operation,
• the formation of entities to carry on such businesses or farms,
• the management of any real property including maintenance and repair or construction of any buildings or facilities thereon,
• pay all the taxes and expenses of the trust,
• receive additional property,
• deal with other fiduciaries,
• borrow money,
• loan money,
• vote and participate in management or any business interest of the trust,
• commence, prosecute, defend or settle any litigation,
• employ people or entities to assist,
• establish reserves for any related purpose,
• decide what is income and what is growth of the trust assets, determine what and how much can be distributed, and
• execute any contract for any of these purposes.

Quite a list!  And this is just a brief summary. And the trustee is supposed to use good, even professional level, judgment in doing, or not doing, any of them. Not an easy job. Of course, your trustee can consult with and hire professionals to advise. Is this job something you really want to put on your 18 year-old child? Or your brother-in-law who could sure use the work? Or your spouse? Or even yourself, who derives no particular enjoyment from watching business news reports and reading annual reports?

So, what options are there?

Single natural person trustee: If you know someone who is likely to be able to handle all the duties and obligations, you can appoint that person as your trustee, or as a successor to you as trustee if you become unable to do it yourself. But successor natural person trustees have a bad habit of becoming unable or unavailable right along with you, so you should probably identify a series of them. Most family trusts name one of the children who are also the successor beneficiaries, to be a successor trustee as well. Most of the time this works out well, but not always. Do you remember the last time they shared a pizza? Or a box of assorted chocolates? And you will not likely be there to calm the waters, or to restore what may be lost over the single caramel delight among your assets.

Natural person co-trustees: you can name any number of persons to act together. If you are married you probably understand how beneficial is it to have somebody else to bounce ideas around with. I know my wife has saved me on many occasions, in many ways, with a simple glance that communicates most emphatically, “You Want to Do WHAT?” If you have two, any decision requires agreement of both, though you can provide that either can sign checks or contracts and such individually. If more than two, a majority will prevail unless you specify differently. You can specify different areas in which a trustee can operate, for example, name one trustee to manage real property, another to handle securities investment, and another to handle accounting, tax and legal issues that arise. Although these “officers” would have executive decision powers, you can make their decisions or recommendations subject to approval by the trustees together. The duration of the trust, the kinds of assets it is likely to hold, and the complexity of issues likely to present will guide you in such organizational decisions. Of course, a cursory view of nightly news shows the discord that can arise if there is little agreement on overall principles and objectives. A wise commanding officer once counseled me, “Keep it simple, soldier!” That’s not the title he used, but I’m sure that’s what he meant.

Professional trustees: You may have a relationship with a financial advisor, accountant, or attorney who you know is capable of the kind of management your trust will require. You may have worked with them as your advisor, and know their reliability in placing your interests above their own. The same issues outlined above would apply.

Corporate trustees: You can appoint a bank trust department, a trust company, an insurance company, even a charitable organization to become your trustee. One advantage here is that these kind of trustees don’t normally suddenly become unable to serve or die. Another is that they typically have extensive controls to prevent misuse of the power you are giving them, since they likely have many clients, and any default toward one would be disastrous to their entire business. They also usually have state or federal regulators reviewing their procedures.

No matter who you appoint as a trustee, you should provide a way that the trustee can be removed. If your trust is revocable, that’s easy during your capacity: you just revoke and amend that section of your trust agreement. But once you are disabled or die, while the courts will entertain a suit to replace a trustee, it is much more cost and time efficient to provide a simpler method. In court, misbehavior of a trustee has to be proven to remove them, but if you give them the power, your beneficiary, or a majority of them, can replace the trustee because they don’t like the car she drives, or the color of his tie. Alternatively, if your beneficiary should not have that power, you can appoint a trust protector to exercise that power on their behalf. Such a trust protector might be an attorney, accountant, or other advisor whom you trust, but who does not wish to be daily involved in the operation of the trust.

Sooo….. Who do YOU trust?

This is one in a series of articles by Richard Leavitt, a partner at Leavitt and Leavitt, PLLC. If you have any questions, let us know by email at Richard@LeavittLeavitt.com or Allen@LeavittLeavitt.com or call us at 702-562-4069. We’ll give you a personal answer as well as address the question as it fits into the series topics.