Financial wellness7 min read

How to Choose Trustees and Beneficiaries for Your Home’s Living Trust

By Noah - December 21, 2020

We’ve talked before about some benefits of putting your home into a living trust, such as avoiding probate and planning ahead for death or illness. The process of establishing a living trust involves naming people to act as trustees or be the beneficiaries who inherit your estate.

But how do you know who to name in these roles? Determining who to trust to manage your estate plan is often a difficult decision. Even naming beneficiaries can be complicated, especially if there are multiple people involved or family members disagree. We’ll walk you through some options to find the right people to be part of your revocable living trust.

What Is a Revocable Living Trust?

As a quick refresh, a revocable living trust is a legal document that gives an appointed trustee the authority to manage assets in the trust under certain circumstances. Typically, this means the trustee takes over managing the assets as directed by the terms of the trust when the trust settlor or grantor (that is, the current owner of the asset, who established the trust) dies or is medically incapacitated.

As the grantor of a revocable trust, you can take control over the assets and change terms at any time, including changing the trustee if your initial pick isn’t a good fit. Of course, it’s easiest if you can establish your trust confidently right from the start.

What Is a Successor Trustee?

A successor trustee is the person authorized to manage assets in the trust after the original trust settlor is incapacitated or passes away. The trustee doesn’t step in until then, and they’re held to certain legal expectations or fiduciary duties, such as managing assets prudently and not showing favoritism among beneficiaries.

In many cases, you have the option to appoint more than one successor trustee in your trust document. Trustees need to agree and sign off on all financial decisions, so having more than one or two trustees can significantly slow down and complicate trust administration.

Types of trustee for living revocable trust

Generally speaking, the first trustee of your living trust is — you. That’s why we talk about successor trustees who step in when you’re no longer capable of managing the trust. You can choose any or a combination of the following to act as a successor trustee:

  • Family members: The benefit of appointing a family member is that they understand your family dynamic, and know and care about you. Some downsides are that family members may lack experience managing trust assets, may struggle with the time commitment, or may have a hard time being completely impartial.
  • Accountant or an estate planning attorney: Working with a “professional trustee” means you get the advantage of that person’s professional expertise and experience. They are more likely to have an easier time with impartiality than some family members. One downside is that they will charge fees, and you need to share their attention with other clients.
  • Bank or trust company: Another professional trustee option, an institution like a bank is likely to be around for a long time. Unlike individuals (family or professional), a bank has very little chance of dying, retiring, becoming incapacitated, or simply deciding to step down as trustee. Banks and trust companies also usually have considerable experience managing trusts. One downside, along with fees, is that you may not always work with the same person. Trust administration duties may get delegated to junior staff, which can be confusing or frustrating.

How to choose a successor trustee

Trusts are established to provide for loved ones when you’re no longer around. The last thing you want is to create strife or stress. With that in mind, here are some best practices to consider in choosing a successor trustee:

  • Avoid naming one child as trustee: Siblings could feel jealous or distrustful. Naming a child as trustee over a trust for your spouse can also lead to strain in the relationship. Making all your kids co-trustees could be successful, or could also be disastrous if the siblings can’t come to an agreement on decisions.
  • Evaluate any potential trustee’s honesty, financial security, knowledge, and skill to work with complex financial matters.
  • Before hiring a professional trustee, ask about their experience, as well as confirming they have liability insurance coverage. You want to avoid a situation where a trustee is self-dealing, because it can be difficult for beneficiaries to recover the value.
  • If you want to appoint both a professional and a family trustee, be up-front about that with professionals you’re considering. Not all professionals work happily with non-professionals, so you want to find someone who supports that plan.
  • Discuss what successful management of trust assets looks like. Communicate your wishes and discuss realistic outcomes so you can feel assured that the trustee will act according to your intentions.
  • Name back-up or contingent trustees, so if your chosen successor trustee isn’t available to perform their duties, the trust won’t go without someone in charge of it for long.

What Is a Beneficiary?

The beneficiary is the person who will ultimately receive the assets in the trust after the grantor or trustor passes away. You can generally choose multiple named beneficiaries, but in the case of putting your home into a living trust, naming multiple beneficiaries can become a little more complicated. If one beneficiary wants to live in the home but another wants to sell the property and distribute proceeds, they may need an attorney’s help to figure out a plan to distribute value equitably.

Trust laws vary by state. You should always work with a qualified professional with experience in establishing the type of trust you are interested in, so you can be sure you’re setting up the trust correctly.

How to choose beneficiaries

A house is a valuable asset, and sometimes a cumbersome one as well. Think through various possibilities when you’re getting ready to choose one or more beneficiaries.

  1. Talk to your loved ones. If you want to leave a house equally to multiple children, have a family meeting. Express your wishes — are you hoping they will keep a beloved vacation house so all can continue to use it? Do you expect them to sell and divide proceeds equally?
  2. Consider costs. Inheriting real estate can mean inheriting mortgage, costly maintenance or repairs, property taxes, estate taxes, and other costs. Are you planning to allocate other assets to satisfy outstanding loans on the house? Are your intended beneficiaries in a good position to take on these financial responsibilities?
  3. Be mindful of pre-existing relationships. If siblings already don’t get along well, forcing them to decide on what to do with a house together can cause further damage. Even family members who are generally on amicable terms may cause a rift if disagreements need to be settled in court.
  4. Let your trustee help distribute assets in a living trust. It may be possible for you to reduce potential conflict between trust beneficiaries by providing instructions that the trustee decide who will inherit the property itself and who will receive their share in equivalent assets from another part of your estate, like your investments, bank accounts, vehicles, or other real property.

Putting property into a living trust can benefit estate planning by making the process of distributing your estate easier for your loved ones. Choosing the right successor trustee to manage a revocable living trust and communicating your wishes with beneficiaries ahead of time can give you peace of mind and help ensure that your efforts have the intended result.

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