Unpacking Trustees- Primary, Successor, and Special Trustees, Trust Protectors and More

A typical Trust document will refer to a Trustee (sometimes referred to as an Original or Primary Trustee) and a Successor Trustee.  These terms are straight-forward and easily understood by even those who are new to a trust or new to trust planning.  The Trustee is the person with general management responsibility for the trust and for the assets, and a Successor Trustee is the person who is designated to take over according to the terms of the trust, typically when the Original or Primary Trustee is unable or unwilling to serve.  By the way, a "person" as used in most trust documents can be a human person, or an institution such as a bank, trust company, broker-dealer, or the like.  Most trusts have provisions regarding institutional trustees, even if none is currently serving or appointed to serve, because future use of an institutional trustee may be necessary or advisable.  

Succession of Trustees  

The trust terms dictate the succession of trustees, and this succession may go beyond simple ability or willingness to serve.  It is not uncommon, for example, that a trust document appoint a successor trustee upon the happening of an event or condition precedent, such as when a person comes of age, or when a person is separated from a family by termination of marriage.  The Trustee serving may be willing and able to serve, but may be replaced by a Successor Trustee when the Successor Trustee attains a certain age, or if the Trustee's marriage is terminated.

Co-Trustees

Many trusts refer to Co-Trustees.  A Co-Trustee is simply two or more persons serving as together as trustee at the same time.  Co-trustees may be empowered to act independently or may be required to act concurrently or in concert.  Simply, a Co-Trustee that is empowered to act independently may act alone, and only one Trustee's signature may be required to take action, while Co-Trustees that act concurrently or in concert must agree, and the signatures of both Co-Trustees will normally be required to act.      

Additional Trustees

Many trust documents refer to additional, separate Trustees.  Reference to these additional trustees may cause confusion for laypersons, as they are typically defined in the trust document only by context.  In other words, the trust document identifies who may serve as a separate or additional trustee, and may describe the authority of these Trustees, but rarely do these documents explain the purpose or objective they serve in the overall plan. This confusion sometimes causes dispute when a separate or additional trustee misinterprets their role and begins making demands of the trustee or attempts to exercise general power or authority over a trust or its assets.  

Special Trustees    

A Special Trustee is someone who is entrusted with exclusive or non-exclusive authority over a particular Trust asset or area of decision-making. The most common reason for a Special Trustee is to protect an asset or asset class, usually because that asset or asset class requires special expertise.  There are two common situations where Special Trustees are employed by a trust.  The first is where a family member serving as a Trustee is dealing with a family member, or himself, or herself in administering the trust assets; when a trustee is selling the family home to a sibling beneficiary.  Although lawful, the conflict of interest may best be resolved, or may require appointment of a Special Trustee to prosecute the sale.  

Another common situation is where the assets include a specialized or professional business, for example a medical, legal or financial practice. A professional medical corporation may be owned by a trust, but the law may restrict the ownership of the corporation to a licensed physician.  Thus a surviving non-licensed spouse may serve as Trustee of the Trust, but another person who has the required license may be needed to serve as Special Trustee who winds-up the affairs of the practice, sells the practice assets and transfers the net cash proceeds into the name of the Trustee. 

Even non-professional businesses may involve a Special Trustee.  Farmers, for example, may desire that one child oversee the administration of all of the assets, but may desire that a person with farming experience and expertise oversee administration of the farm and farm assets.  Our office has worked with clients that wanted Special Trustees to oversee the administration of business assets, to oversee the treatment and disposition of exotic animals such as exotic birds, ostriches, and cutting horses, and to oversee administration of unique assets such as artwork, copy-righted publications, antiques, and in case, a train.  

Trust Protectors    

 A Trust Protector is someone who is entrusted with exclusive or non-exclusive authority to protect a particular beneficiary or class of beneficiaries, usually because of vulnerability and/or inability of the beneficiary or beneficiaries to protect themselves.  Beneficiaries that are minors, or suffer from disability or impairment may require special protection since they are unable to protect themselves. A  Trust Protector is not, usually, involved in the day to day management of the Trust or its assets, but is typically empowered to oversee the Trustee.  A Trust Protector may be empowered to terminate a Trustee, replace a Trustee, or nominate and appoint additional Successor Trustees.  A Trust may confer to Trust Protectors additional authority to ensure that the Trust continues to work in the best interest of the beneficiaries, by, for example, authorizing a Trust Protector to petition the court to amend or reform the Trust document.  

Trust protectors are commonly used in Supplemental Needs Trusts and in wholly discretionary Trusts where the Trustee has complete discretion whether or not to distribute assets to the beneficiary. A Trust Protector is an alternative to requiring an advocate on behalf of a vulnerable beneficiary to seek and obtain legal authority to represent the beneficiary, and then protect the beneficiary formally, legally through court processes.  Like probate administration of assets, these legal processes bear cost and expense, including the uncertainty of outcome, time, and legal expense.   

Planning Regarding Trustees 

A common question is, "who do I appoint as successor trustee of my trust?"  Keep in mind two things.  First, that person will settle your estate.  Second, and more importantly, that person will mange your assets and affairs for you,  during your life, if you are unable to do so!    

Simply, a person serving as trustee should have the trust and confidence of the person creating the trust and making the appointment.  That trust and confidence is best if based upon actual repeated interaction and experience with the trustee over a long period of time.  If based upon a brochure, flyer, referral of a family member, recommendation of counsel, that trust and confidence may, of course, turn out to be well-founded, but, at least initially, you have no personal basis for trust and confidence.

A person should not be appointed as a trustee simple because they have a relationship with the the person who creates the trust, or with the beneficiaries of the trust.  While relationship is an important consideration, trust and confidence do not always follow familial relationship. 

Also, plan for the worst case scenario, and not the statistically probable or best case scenario.  Often, a person will ignore excellent choices do to their age or due to health considerations that may impact the life expectancy of potential trustees. Select the best person for the job now.  Select successors to handle the passage of time and circumstance.  

While it is perhaps correct that a parent or older sibling, or younger sibling may not be able to serve if you reach an advanced age, if they are a better choice for the near term than younger less responsible choices, do not overlook them.  The worst case may be statistically improbable, but planning should be based on that which is foreseeable and possible, however unlikely.  Worst case scenarios, when they do play out, are often made worse by poor planning.