Last week I shared with you the story of Joe who, as a named healthcare power of attorney for his aunt and uncle, found himself in the difficult position of having to make healthcare decisions for both of them under less than hospitable circumstances. As though that were not enough, Joe was also named the successor trustee for his aunt and uncle’s trust, which meant that at the same time he was making difficult healthcare decisions, he would also have to make important financial decisions. Now, at first glance you might think it makes sense to name the same person in both capacities. After all, one of the decisions Joe had to make was whether his aunt and uncle should receive care in their home or in a facility, and that would certainly depend on what they could afford. But there are a number of reasons why it may have been better to name someone else as the successor trustee.
Avoiding clouded judgment
As you can tell from Joe’s story, he was put in the position of having to make important decisions involving both his aunt and uncle’s healthcare and their finances. Under such stress, it’s possible that Joe’s judgment could be impaired. On the one hand, making healthcare decisions involves a lot of emotion and requires a great deal of compassion and sensitivity to the situation along with an understanding of the relationship between the people involved and their circumstances. On the other hand, making financial decisions requires more judicious thought, considering the net effect of transactions, and making decisions based heavily on the facts and circumstances of the moment. Finding a single person who has the skills to handle both is rare, let alone someone who can handle them effectively under stress.
Consider naming separate people to handle the healthcare decisions and the financial decisions. A healthcare power of attorney should be someone who can empathize well with family and friends, but at the same time, has the fortitude to make difficult decisions. For a successor trustee (or a financial power of attorney), name someone that has a proclivity for making good financial decisions. It is important that each knows the other, so that if and when action must be taken, the two can work in concert.
Avoiding conflicts of interest
Another reason why it may be wise to name separate persons for making healthcare and financial decisions is because of the potential conflicts of interest. While we would never suspect a loved one of compromising the care of a family member for their own gain, it’s not inconceivable to imagine a healthcare power of attorney choosing a less expensive healthcare option based on the expectation that they might receive a larger inheritance as a result. If you think I’m crazy, then consider what happened to Joe:
As I may have mentioned, Joe’s aunt is from another country, and as soon as her foreign relatives learned of her situation, they were suddenly interested in what type of care she was receiving, and more importantly, how much it cost. They began to scrutinize Joe’s decisions, sending emails that called into question the choices he had made for his aunt and uncle. One must wonder why these foreign relatives were so concerned with the cost of the care, rather than taking the time to understand the events and circumstances that led up to their placement in an assisted-living facility (where, by the way, they are receiving better care and treatment than they would have received had they stayed in their home).
All this leads to a third reason why you may want to name a different person, or a non-living personal altogether, as a successor trustee…
Avoiding disputes among family members
As a parent, I know how easy it is for siblings to quarrel over the most trivial of things, but imagine if mom or dad (or in this case an aunt or uncle) name a son or daughter (or worse yet, a son AND daughter) as the successor trustee? How long will it take before siblings or relatives begin to argue and fight over decisions? To avoid this scenario altogether, consider naming a corporate trustee as your successor trustee rather than a member of the family. That way, if family members don’t like the way financial decisions are being made, they can channel their anger toward a non-related party and not another member of the family.
A corporate trustee has a fiduciary responsibility to the parties of the trust so they are more likely to make impartial decisions. They generally have experience in managing not only common investments like stocks, bonds, and real estate, but less common things like a closely held business – something most of us would know little or nothing about. With a corporate trustee, you don’t have to worry about whether or not your successor trustee will be ready, able, and willing to step into the role of trustee if and when needed. A corporate trustee is always there, always ready to step in and fulfill the obligations required of a fiduciary.
As you can imagine, all of this comes at a price. Most corporate trustees charge a fee as a percentage of assets under management. The typical fee begins around 1% and usually declines as the value of assets under management increases. But here’s the thing: those fees do not kick in until the corporate trustee must actually act as a trustee, so you can have a corporate trustee named as a successor trustee, but they will only begin to receive a fee AFTER they take over as the trustee. This usually only happens after someone becomes incapacitated or is deceased. When you consider how much pain and aggravation can be avoided by naming a corporate trustee, you may decide that the fee is more than worth it.
Whoever you name as your successor trustee will be responsible for the management and distribution of your trust assets. You owe it to yourself and your loved ones to choose your successor trustee carefully.