A trust is among the most popular additions to a well thought out and comprehensive estate plan. When creating a trust, one of the key decisions you will need to make is how much discretion to grant your Trustee. The Trustee plays a vital role in managing and distributing the trust assets, but the amount of authority they have can vary widely. Working with an experienced trust attorney is the best way to create a successful trust. It may help, however, to consider the issue of Trustee discretion ahead of time. With that in mind, the Los Angeles attorneys at Schomer Estate & Wealth Advisors discuss the factors you should consider when deciding how much discretion your Trustee will have in the trust you establish.
How a Trust Works and the Role of a Trustee
A trust is a legal arrangement in which a Grantor (also referred to as a “Trustor” or “Settlor”) transfers assets to a Trustee, who manages and distributes those assets for the benefit of the Beneficiaries. Trusts are commonly used in estate planning to accomplish various goals, such as ensuring that assets are distributed efficiently and according to the Grantor’s wishes while also avoiding the need for probate.
The Trustee is the individual or entity responsible for administering the trust and is appointed by the Grantor when the trust is created. The Trustee has numerous duties and responsibilities, including managing investments, distributing assets, paying taxes, and ensuring that the trust operates in accordance with the terms set out by the Grantor in the trust agreement. The Grantor can appoint anyone to be the Trustee, including a family member or a trusted friend; however, appointing a professional, such as a bank, law firm, or trust company is often best, especially if the trust is complex and/or holds valuable assets.
Factors to Consider When Deciding How Much Discretion to Give a Trustee
A Trustee is legally required to follow the terms included in the trust agreement; however, most Trustees have some degree of discretion. The level of discretion you grant your Trustee can have a significant impact on how the trust functions and how effectively your goals are met. There are several factors you may wish to consider when deciding how much discretion your Trustee should have, including:
- Trust Purpose and Objectives: The primary factor that should guide your decision is the purpose of the trust. If the trust is designed to provide for basic needs such as housing, medical care, or education, you may want to limit the Trustee’s discretion to ensure that these specific needs are met. On the other hand, if you wish to give your Trustee flexibility to adapt to changing circumstances or to respond to Beneficiaries’ varying needs, then broader discretion may be appropriate. For example, a discretionary trust may allow the Trustee to decide when to make distributions based on a Beneficiary’s financial situation, health, or even spending habits.
- Beneficiary Characteristics: The financial maturity, personal circumstances, and overall responsibility of the Beneficiaries should also play a role in your decision. If a Beneficiary is financially stable and responsible, you may feel comfortable granting more discretion to the Trustee, as the Beneficiary will likely be able to handle distributions wisely. If a Beneficiary is a minor, has special needs, or struggles with managing money, however, you might prefer to limit the Trustee’s discretion to ensure that distributions are made carefully and with the Beneficiary’s best interests in mind.
- Trustee’s Expertise and Judgment: The amount of discretion you grant your Trustee should also align with their level of expertise and judgment. A professional Trustee, such as a bank or trust company, may have the experience and resources to manage complex financial situations and make sound judgments about distributions. If you choose a family member or friend as the Trustee, consider their ability to handle the responsibilities and whether they are comfortable making decisions that may involve discretion. Granting too much discretion to an inexperienced or unqualified Trustee could lead to mismanagement of trust assets, disputes with Beneficiaries, or even legal challenges. On the other hand, a well-qualified Trustee with broad discretion may need additional leeway to be able to navigate unforeseen circumstances and act in the best interest of the trust as situations evolve.
Do You Have Additional Questions about Trustee Discretion?
For more information, please join us for an upcoming FREE seminar. If you have additional questions about how much discretion a Trustee should have, contact the experienced Los Angeles trust attorneys at Schomer Estate & Wealth Advisors by calling (310) 337-7696 to schedule an appointment.
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