Q. One of my top priorities for 2020 is to get my estate planning documents in order. Before doing so, I plan to discuss my wishes with family members over Christmas, although as a single woman without children, I don’t have too many of them.
I know that when I begin my planning, I need to select people who will serve as trustees of my trust and agents under my powers of attorney – people who will look out for my best interests. Not knowing who to choose is one of the reasons why I have been putting off doing my estate planning in the first place.
Recently, I read an alarming story about a man in Michigan who was chosen as trustee for his 92-year-old mother who is in a nursing home. The man took full advantage and spent six million dollars of her money, buying fancy cars and other luxuries, and was not able to account for the expenditures. I was glad to see that he is now incarcerated and being held and fined each day for not furnishing receipts for what he spent the money on, but this type of thing concerns me. I’m sure the woman thought she could trust her son when she named him as her trustee!
I have a niece and a nephew who could serve as trustees, but I don’t know them very well. How can I tell if either of them, both of them, or perhaps a friend or a professional, would be the best fit? Is there a list somewhere of things the trustee does so I can show them when I talk with them about it? Thanks for your help!
A. Selecting a trustee can be one of the toughest decisions you can make, and it’s important to choose carefully. Choosing someone who is reliable, trustworthy, and honest is crucial, because although the law imposes a duty on trustees to faithfully carry out the trust’s terms, that doesn’t always happen as you know from the situation with the man you described in your question.
Fred Smith, 73, of Utica, Michigan, assumed his role ten years ago as trustee for his 92-year-old mother, Shelby Smith-Steves. He controlled his mother’s account with over $6 million in it, for ten years, sold two of her homes, and spent the money on luxuries such as fancy cars and motorcycles.
Smith had been ordered several times by two judges to provide legitimate documentation of how his mother’s money was spent. Probate Judge Sandra Harrison originally jailed Fred Smith in October for failing to provide “an accounting” of millions of dollars despite four or five orders over more than two years to do so. Harrison also ordered Smith to turn over the key to a storage unit he has in which he keeps a classic car. She believes it may have been purchased with his mother’s missing money and other documents and items may be stored there, as well.
At a previous hearing, Harrison told Smith he was “co-mingling everything and buying whatever he wanted to buy and keeping no record of it.” The judge issued a per-day fine which was to remain in place until he accounted for his mother’s money. The fine has accumulated to more than $100,000, none of which has been paid. After a review of the case, Harrison said Smith will remain in jail until he provides the information.
Smith denies any wrongdoing and told the judge that he is unable to provide the requested information because he is behind bars with limited resources, but Harrison insists he get the information while he is in jail using the resources that he has there and refuses to release him until he does so.
Attorney George Heitmanis, court appointed guardian and conservator for Shelby Smith-Steves, pointed out that the county Sheriff’s Office has launched a criminal investigation of Mr. Smith.
The situation described is extremely unfortunate and sad, but luckily is also quite unusual.
Choosing a Trustee Should Not Be Taken Lightly
As you can see, choosing a trustee to manage your estate when you are gone is an important decision, and one that should not be taken lightly.
Depending on the type of trust you are creating, the trustee will be in charge of overseeing your assets and the assets of your loved ones. Click here for our blog article on the duties of a trustee for more information on what’s involved.
Criteria for a Good Trustee
Most people choose either a friend or family member, a professional trustee such as a lawyer or an accountant, or a trust company or corporate trustee for this key role. Here are some considerations in making this critical decision:
1. Choose someone who is trustworthy and honest: As mentioned, Ms. Smith-Steves may have thought her son would be someone she could trust with her money. A good rule of thumb is that if you cannot trust the individual to hold $100 for you, you should not name him as trustee. Use your best judgement. Remember, an honest and honorable trustee will make decisions based solely on the beneficiary’s needs, and not his or her own needs.
2. Select someone who you know will be good with money: If you choose a family member or friend, he or she should be financially astute and good with money. He or she should have financial knowledge and be competent when it comes to money management, taxes, and investing. All trusts have certain duties concerning tax planning and maintaining books. The trustee must also oversee the investments in the trust and diversify them so that they are neither too conservative nor too aggressive. This latter duty is often handed over to a trust financial advisor who will work with the trustee to ensure that the money is properly invested and managed.
3. Knowing what’s entailed and being willing to serve: Once you’ve clearly explained to potential individual trustees what their duties would involve, and under what conditions they would serve, be sure they seem willing to accept the role and responsibilities that go with it. If they don’t know what to expect or don’t want to do it, when it comes time for them to serve, they might decline or mismanage the trust. It may be a wise idea to provide them with a written letter, or “job description,” outlining their duties in the role.
4. No Conflicts of Interest: Remember, a trustee of a revocable trust must manage your money for the benefit of you, the beneficiary. This means that the person serving as trustee must not act in his or her own best interests—or the interests of others—when making investment or spending decisions. With a typical irrevocable trust such as our proprietary Living Trust Plus® Asset Protection Trust (designed to protect your assets from probate PLUS lawsuits PLUS Medicaid PLUS Veterans benefits for wartime veterans), you are not the beneficiary of the trust, but it is just as important to pick a trustee who you have confidence will act in your best interests, and to pick beneficiaries who you are trust to act in your best interests.
A Trustee Doesn’t Have to Be a Family Member
Most people like to start by considering family members and friends as trustees, because in most cases they are the ones who know you best and are typically the most trustworthy. Family members often do not charge a trustee’s fee (although they are usually entitled to take a fee). Sometimes it could lead to resentment by other family members if the trustee does take a fee and he or she takes too much, or it can lead to resentment by the trustee for taking too small a fee and feeling like he or she is doing a lot of unpaid work. This is one reason why family isn’t always the best option, and you may be better served with a professional trustee or trust company that has expertise with trust administration, or a combination of a professional trustee and family member(s). Your family member may be most familiar with the family dynamics, but the trust company or professional trustee can handle all the trust administration and make the tough calls when needed.
Still Can’t Choose a Trustee? Don’t Put Off Getting Your Estate Planning Documents in Order!
Do not put off finalizing and signing your estate planning documents just because you have reached an impasse on who to name as trustee. Talk to the experienced estate planning and trust administration attorneys at the Farr Law Firm, family members, friends, and other professionals and work through your concerns to find a solution that works for you and your family. For more details on the services we provide, please read our Web page on Estate Administration.
Estate Planning is Important for Everyone—Single or Married!
Here at the Farr Law Firm, we have strategies to help everyone plan for themselves and their loved ones. If you or members of your family have not done Incapacity Planning or Estate Planning, or if a loved one needs nursing home care or even if your loved one is already in a nursing home, please contact us as soon as possible to make an appointment for an initial consultation:
Estate Planning Fairfax: 703-691-1888
Estate Planning Fredericksburg: 540-479-1435
Estate Planning Rockville: 301-519-8041
Estate Planning DC: 202-587-2797
About Renee Eder
