April 14, 2024

Farm estate planning: Choosing a trustee

Extension Notebook

Disclaimer — The following is meant only for educational purposes and not to be construed as legal advice. Consult your legal adviser for actual legal advice.

As you work through the estate planning process, selecting an estate trustee or executor is a very important decision. The person you choose can make a big difference in how well your plans are followed and the family dynamics that play out in the process. It can have an impact on your legacy to future generations.

Farm assets have become quite valuable. Selecting the trustee/executor to manage your desires for distributing your hard-earned farm assets is a very important task and can be a decision that causes anxiety. To help you think through this decision-making process, I will discuss some important factors to consider.

For this article, I am using these terms as follows:

Trustee or executor — the person chosen to manage or distribute your estate

Trust documents — a generic term for legal documents such as trusts or wills

Trustor — the person or married couple (or couple in a union) who establishes a trust to hold, manage or disperse property held in a trust for the benefit of the trustor or their heirs (referred to as beneficiaries) of the trust.

There are lot of reasons why a trustee is chosen. No matter how much time, energy and resources are used to create your trust document, it is impossible to create a perfect one that accounts for every possible development or situation. When selecting a trustee, the person(s) should be someone you know very well, and you find trustworthy and honest.

Often an adult child of the trustor is named trustee without careful thought. Many trustors make this decision without a lot of thought as to the ability of the adult child they will need to be able to carefully follow through on the provisions in the trust.

Here are some of the reasons a particular child or children are selected to be the trustee(s):

• Oldest child

• Only child

• How close the child lives to the property or to the parent

• Most dominating child

• Most caring child

• Child that is the best with money

• The favored child

Over the years, I have seen plenty of family explosions occur as a result of failure to select an adequate trustee. These include families never speaking to each other again in this life, severely damaged sibling relationships, unfair distribution of assets/benefits, lawsuits, jail sentences, and family members being severely harmed financially.

Remember, the person you choose to be trustee will have a big impact on how well your instructions are followed and how well your children get along in the future. The job alone will be time-consuming and frustrating even if there are no problems arising from the settlement of the estate. Administering an estate is a serious business.

If the trustee is believed to be showing favoritism, relationships can forever be damaged. This can lead to lawsuits. Some trustors place “no-contest” provisions in the documents to punish those who don’t agree with the distribution of assets/benefits, and this also can cause deep divisions. Sometimes, family members perceive these provisions as a “right to steal” or to “take advantage” of the situation. This may be reality or perceived reality, but the impact can be very harmful.

Some trustors choose only one trustee and other times two or more. There are pros and cons to each option. The number you choose may depend on the ability and personalities of the trustees selected. When more than one trustee is selected, they will have to agree on every decision, but they can also provide checks and balances for each other. They may also be able to share the workload and complement each other’s skill sets. A carefully chosen single trustee can often manage the job alone. A successor trustee (a backup) should also be carefully chosen if the trustee can no longer fulfill his/her duties.

Here are some positive aspects to think about when selecting a trustee:

• The ability to understand the handling of money and to know when and where to get help

• Fair and honest

• Ability to communicate clearly and deal with difficult personalities.

• Have a clear understanding of the provisions of the trust documents and the trustors’ desires (the same is true for the beneficiaries)

• Patient and emotionally grounded

• Demonstrated an ability to follow through on responsibilities and complete tasks

• Naturally proactive to head off potential problems

Below are some traits of people you likely should NOT choose as a trustee:

• Poor money manager

• Disorganized personality

• Demonstrates difficulty in following through on responsibilities

• Wants to “win” at all costs (argumentative and/or combative)

• Bullies or intimidates others, including you as the trustor

• Natural risk taker or gambler

• Too soft and naturally capitulates to others

• Doesn’t naturally take advice or ask for help

In the end, it is imperative that you think through who you select as trustee. No one you select will be “perfect” for the job, but it is up to you to select the “best” trustee for your situation.

If you do not have someone in the family that you feel is right for the job, consider a corporate trustee, which is often a bank trust department. If you go this route, you will want to analyze the person who will be the designated manager of the trust. A benefit of a corporate trustee is that if your heirs/children become frustrated in the process they will most likely take their frustration out on the corporate trustee and not each other.

Managing trusts and dispersing assets is no easy task. Take the time to select the “best person” for the job. Your heirs will love you for it.

Kevin Brooks is a farm business management and marketing educator, University of Illinois Extension, Fulton-Mason-Peoria-Tazewell Unit.