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Trustee Selection

Missouri’s adoption of its new Uniform Trust Code creates additional liabilities for those who act as trustees. Trustees are now subject to even higher standards of scrutiny and liability for failure to follow procedures or to fulfill their duties. We have had several highly respected colleagues share with us that they will no longer agree to serve as trustees because of the increased risks to their personal assets for liabilities as a trustee.Individual vs. Professional TrusteeThe key to success for every trust is a trustee who understands fiduciary obligations and who has a keen interest in the welfare and benefit of the beneficiary. In many family trust situations, a beneficiary who feels that a trustee has their best interest at heart allows trust planning to work extremely well.However, when animosity occurs between a beneficiary and a trustee, this makes a trustee’s job that much more difficult. Even a well meaning trustee who fails to follow legally mandated requirements such as keeping separate books and records, diversifying the trust investments properly among all asset classes, or failing to report to the beneficiaries in a timely manner can incur personal liability. The advantage of an individual trustee is significant in that most family members who are willing to serve as a trustee often do so without fee or compensation of any sort. The downside to individual trustees is the fact that many individuals have no experience in matters of fiduciary financial reporting or investment diversification. An individual trustee who acts without professional advice will often do things which, to them, seem innocent. Only later does the trustee discover that he or she is in breach of a fiduciary duty. Such a breach exposes the trustee to personal liability.Professional trustees, such as licensed and bonded banks and trust companies, have the advantages of perpetual existence, not becoming distracted by personal matters, and understanding the complex laws of fiduciary investments and accounting rules. The downside to the professional trustee is that they do charge a fee for their services. However, in our experience, many times the expense of that fee is a small price to pay for allowing a third party to guarantee to all beneficiaries that everyone will be treated fairly. Beneficiaries may appreciate having a neutral third party making decisions based upon the wishes of the Trustmaker as opposed to that of a beneficiary-trustee who might have a vested personal interest in the outcome. Sometimes a combination of both professional trustees along with family members acting together as a committee is a good compromise to implement the Trustmaker’s wishes with regard to the administration of the trust estate upon a Trustmaker’s disability and/or death. For example, if two children and a trust company are named as co-trustees, each of them would have one vote. Thus, two out of three of the trustees’ decisions would be binding upon the trust.Removal powers are extremely important. A Trustmaker should consider who should hold those removal powers after the Trustmaker’s death or disability. Often we allow the majority of the beneficiaries to hold the power to remove a trustee. If the trustee does not have confidence in the judgment of the beneficiaries, a person may be appointed as a Trust Protector and given authority to hire and fire the trustee. Every Trustmaker wants his or her trust administration to be a smooth orderly transition. This is one of the goals of a revocable living trust. The question Trustmakers must constantly ask themselves is, “in whom do you trust?”