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Choosing the "Best" Trustee

The selection of a trustee for a revocable living trust is one of the most important decisions when developing an estate plan. It does not matter how well a trust is drafted, if it is not correctly administered your goals may not be carried out. What qualifications should we look for in a good trustee? Some of the most obvious are:

  • * Will act in the best interests of the beneficiaries
    * Knows what the beneficiaries need and want
    * Is well versed in the subject matter of the trust
    * Has the time and ability to serve as trustee
  • * Has no conflict of interest
    * Is located near the beneficiary
    * Is competent in financial & tax matters
    * Has appropriate prior experience

Is there a "best" trustee?

  • Family member - Surviving spouses often serve as trustees for marital as well as family trusts. Many people are more comfortable when they know the trust assets are managed by a member of their own family. Management by a family member also eliminates fees that would be charged by a professional trustee. However, most such persons do not have the necessary qualifications and experience and may be prone to conflicts of interest.
  • Friends - A close friend may have a good understanding of what the grantor wishes but may lack the requisite experience and may not have either the time or energy needed to do a good job.
  • Lawyers and accountants - People often turn to their lawyer or accountant when choosing a trustee. A lawyer or accountant who has been a close advisor and friend may be a good choice, provided that person has the necessary skills and experience.
  • Corporate trustee - Bank trust departments and independent trust companies are in the business of providing professional trust services to the public. They have the experience, the expertise and the staff to handle trust management. They can also be expected to take care of the necessary accounting and tax functions required of most trusts. The fees charged by corporate trustees may include a percentage of the trust assets as well as annual administration fees and an annual minimum fee. Ask about the fees before selecting a corporate trustee; the fees may be less than you think. The family members also need to be satisfied that the corporate trustee will work closely to understand their needs.

Because the future is always uncertain, it is wise to build safeguards into the trust so that any problems arising at a later date can be effectively managed. At Checkett & Pauly, we draft trusts so that the family retains the ability to replace a corporate trustee with another one of the family's choosing. We also advise families to name successor trustees in case the first trustee is unable or unwilling to continue to fulfill their obligations as trustee.


Although busy with many projects both foreign and domestic, in this past year Congress made no change to the estate tax code. There were a number of proposals in Congress to raise the amount of assets which could pass free of estate tax and even eliminate estate tax. George W. Bush has gone on the record favoring a repeal of the estate tax. We will see after this year's election if any of this will come to pass. At this time, the estate tax code allows as follows:

  • Year

    2006 and later

  • Estate Tax
    Free Amount

    $1 million


Many individuals do not think about their life insurance as a taxable asset. However, long and forgotten life insurance policies or term policies through a place of employment may result in large assets subject to estate tax. Moreover, the ownership and the naming of the beneficiary of such policies have a direct influence on the who, what, and when of an estate plan.

As a general proposition, if a person owns or controls a life insurance policy at the time of death, the entire policy proceeds are subject to estate tax. If the policy is taxed based upon who owns it, the most obvious question is then, "Who should own the life insurance policy?"

It is generally not advisable for clients subject to estate tax to own their own policy. If they do, the proceeds are included in their estate and will drive up the estate tax liability. One technique is to transfer the policy to the children. There is no estate tax on the policy proceeds if the insured is not the owner, so long as the transfer was made more than three years prior to death. There are disadvantages which include:

* The child may predecease the parents.
* A policy with large cash values could be subject to a dispute in a child's later divorce.
* A policy with large cash values could be subject to claims of a child's creditors.

A very popular technique is to create a irrevocable life insurance trust and have that trust own the life insurance policy. Family members may be trustees or, as is often preferable, a professional trustee may be named. Assets owned by an irrevocable life insurance trust are protected from estate tax as well as from the child's creditors and may be used to provide living expenses for surviving spouses, children, and even grandchildren.

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