Co-Trustees

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“Trusts with many trustees have co-trustees when they are appointed together to manage them. Also, a trustee files taxes for trust income when necessary to sell and distribute trust property. Co-trustees usually have the same duties and powers unless instructed otherwise in the trust document.”

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Co-Trustees

In estate planning, trusts help you transfer assets to your beneficiaries. It is possible to appoint co-trustees who will share the responsibility for overseeing the trust when the grantor, settlor, or trustor opens it. However, having multiple trustees can result in disagreements that delay trust administration. They usually need to reach a consensus when making decisions about trust.

 

What is a co-trustee/Its Definition?

What is a co trustee? They act as trustees for a trust with another trustee, person, or organization. Co-trusteeship is an alternative to co-trusteeship. This enables two or more trustees to oversee and manage trust assets jointly.

As it allows the administration of complex estate plans, the distribution of responsibilities, and the continuity of care, this arrangement is particularly useful in estate planning.

 

Responsibilities and Roles

Your responsibilities include managing and distributing assets according to your trust agreement. Among their responsibilities are investing trust assets, keeping accurate records, and making regular distributions to beneficiaries.

A trust, or a separate entity that holds the trust’s assets, is a separate entity that has a fiduciary duty to act in the best interests of the trust beneficiaries. Co-trustees are responsible for managing the trust assets following the grantor’s wishes. They may not have many more responsibilities than distributing trust assets to beneficiaries following the grantor’s death and doing a final trust accounting, depending on the complexity of the trust.

Other trusts, such as those lasting for years, have co-trustees with more responsibilities. Including preserving trust property, filing and paying trust taxes, and managing trust investments. For large estates, the primary objective is to grow trust assets. Hiring a professional trustee like a trusted company is common.)

 

Is There Anyone Who Can Be A Co-Trustee?

When establishing a revocable living trust, the grantor can choose almost anyone, except a minor, who will serve as a co-trustee. You may also appoint your spouse as a co-trustee.

For example, you and your spouse can be trustees of your family or joint trust. Your daughter could serve as a successor trustee after you pass away. She would do the same with your remaining spouse as a co-trustee.

 

Importance in Estate Planning

They are essential to estate planning to ensure the trust is managed effectively and follows the grantor’s wishes. Bringing the unique expertise and perspectives of them to the trust administration process can prevent fraud and provide checks and balances.

 

Selection criteria

It is imperative to select co-trustees who possess a positive reputation, are competent, and are willing to serve. A co-trustee must have a background in ethics, knowledge of the trust, and an interest in its success.

 

Identifying potential co-trustees

Family members, friends, professionals, and trust companies are all potential co-trustees. Following the trust’s specific needs and objectives. Every co-trustee type has advantages and disadvantages.

  • A co-trustee agreement
  • Co-trustee agreements: their purpose
  • Agreements define the roles, responsibilities, and decision-making processes of co-trustees. These agreements determine how co-trustees should work together and manage the trust.

 

Agreement’s Key Components

Here are some points to consider when drafting an agreement:

 

Allocation of Responsibilities:

Determine clearly what each trustee’s responsibilities are.

 

Decision-Making processes:

Establish decision-making criteria, including the need for unanimous or majority consent.

 

Dispute Resolution:

Provide details about how to resolve disputes among co-trustees.

 

Compensation and Expenses:

List any payment or expense reimbursement for them.

 

Removal and Replacement Provisions:

Describe how they may leave or replace, if necessary.

 

Advantages/ Benefits

Many trust settlers wonder whether to name only one successor trustee or if they should appoint two or more co-trustees. Some prefer having two or more Successor Co-Trustees because checks and balances exist.

We can bring different skill sets to a trust by co-trustees. One with a greater understanding of the trust settlor’s intent. The other better understands the beneficiaries’ needs and wants regarding the trust settlor.

It is essential to describe whether each trustee must act together or act independently of one another to reduce administration burdens for each trustee.

 

Making balanced decisions

It is beneficial for the trust’s beneficiaries if there are co-trusteeships. As multiple perspectives and expertise can contribute, resulting in more informed decisions.

 

Responsibilities and Duties

Dividing responsibility between two or more they can make trust administration more efficient and effective.

 

A smooth transition and continuity

They can continue administering the trust without interruption if one becomes incapacitated or dies. This ensures a smooth transition and safe asset management.

There are many reasons why co-trusteeship is a good idea. For example:

  • As long as there are two trustees, an extra person is tasked with managing and monitoring the records and keeping track of what is happening.
  • It is less burdensome to have two trustees since they share the same burden.
  • They can possess complementary skills. Such as one with a wealth of organizational and administrative knowledge. While the other focuses on asset management and growth.
  • If the grantor appoints co-trustees, there will be fewer family tensions since no family member has sole decision-making power.

Some grantors, however, appoint them for the wrong reasons. Keeping peace within a family is one common reason for selecting a co-trusteeship. One adult child of a grantor might recognize that they are better suited to serve on a trustee board than one of the others. They may feel, however, that appointing one child over the other will cause conflict.

If a grandparent establishes a trust for grandchildren. It might be natural for the grandparents to include the children’s parents in the faith. When a child is a minor and a parent is married, it may seem like a logical extension. Because the parents already share the care and decision-making of the child.

In such a case, they may need help achieving their goals. If the parents separate or divorce. It makes it difficult for them to work together for the children’s benefit. It is important to note that co-trustees may not be beneficial. Even if the grantor’s reasoning relies on more practical considerations.

 

Identifying and Addressing Potential Challenges

 

Cooperation and communication

Cooperation and communication are critical elements of an efficient co-trustee structure. Clearly stating expectations and setting up regular communication channels can help mitigate conflicts and misunderstandings.

 

A conflict of interest

They must avoid conflicts of interest. If a dispute arises, it needs to come to light and be resolved ASAP to maintain the integrity of the trust.

 

Incapacity to make decisions

Their agreement should include provisions dealing with deadlocks in decision-making. It is possible to resolve deadlocks.

 

A co-trustees incapacity or death

Their agreements and trust documents should contain provisions regarding the appointment of a successor co-trustee upon the death or incapacity of a co-trustee. These provisions ensure a smooth transition and continued administration of trusts.

 

The Legal Responsibilities of Co-Trustees

 

The Legal Responsibilities of Co-Trustees

 

Duties of a fiduciary

If they fail to uphold these duties, they will be liable for failing to act in the best interest of the trust’s beneficiaries. The fiduciary duty requires them to act prudently and diligently.

 

Assumption of liability and indemnification

They are liable for breaching their fiduciary obligations in negligence or mismanagement of trust assets. To protect co-trustees from liability in certain circumstances, indemnification provisions are essential within the co-trustee agreement.

 

Implications for taxation

They ensure compliance with all applicable tax laws and regulations. They are responsible for:

  • Filing tax returns,
  • Paying required taxes,
  • And maintaining accurate records.

 

Compliance with regulations

Besides tax compliance, they are also responsible for ensuring the trust complies with any other applicable laws and regulations.

 

Co-Trustees Can Act Alone, Right?

They must reach an agreement (either unanimously or by majority). Whenever making decisions unless the trust agreement permits one co-trustee to act independently. It may be the case that a co-trustee is only allowed to serve under limited circumstances or roles. According to the trust agreement, such as when the other co-trusteeship is unavailable.

They can go to court and file an objection if they cannot agree and even ask the court for advice if they cannot agree. The grantor or the trust beneficiaries may also petition the court for the removal of another co trustee of a trust with the help of a co-trustee.

In your trust document, specify your intentions so that your co-trustees will not have to guess. Squabbles and disagreements will delay the beneficiary’s inheritance. A co-trusteeship is a good idea if the following reasons apply:

  • Having only two children makes choosing between them difficult.
  • It is possible to manage the trust appropriately if a third party helps the child to serve as a trustee.
  • The idea of having two heads in charge may appeal to you.

 

A Trustee’s Duties

  • Need of implementation of the trust document’s framework.
  • Prepares tax returns, manages investments, pays bills, and performs regular accounting.
  • As trustee, you have a fiduciary duty to act in your and your beneficiaries’ best interests of trust assets and distributions.

 

A Trustee’s Qualities

  • Financial savvy, or knowledge of resources available, is a must for managing finances.
  • Maintain confidentiality and demonstrate trustworthiness.
  • Listening to the needs of the beneficiaries should be a priority.
  • Independently determine what is best for each beneficiary and the trust.
  • Availability and time should be available for the job.

 

What Are The Disadvantages Of Naming Co-Trustees?

What are the pros and cons of co-trustees? It may be necessary for the trustees to be present in the same place simultaneously. When dealing with paperwork, signing checks, and selling real estate if they need to act together. If the trustees live close to one another and communicate their availability to each other, this can slow down the process.

Even though some trusts do stipulate that they get permission to act independently. However, some financial institutions need to honor this language.

What are co trustee problems? Your co-trustees can disagree about the trust administration process, leading to more problems. But assuming the role of trustee due to a family crisis. Such as a death or severe health problem can be challenging.

It is natural for co-trustees to disagree when their emotions are already high. The trust usually dictates how these co-trustees must proceed when they disagree. Often, this means they must all come to a unanimous decision; if not, a court has to decide. More often, though, a majority decision is made when there are three co-trustees. This can result in hurt feelings and family strife.

 

Co-Trustees Don’t Agree?

What happens when co trustees disagree? In a trust, trustees manage and distribute assets. Trustees can be individuals or financial institutions. Sometimes, clients may designate two or more trustees in their trust document as co-trusteeship to share these responsibilities.

You should appoint to make distribution decisions or decide on investment strategies more thoughtfully.

As a rule, co trustees of a trust must agree on decisions unanimously or by majority. It is possible for a trust to allow one co-trustee to act independently. However, the terms of the trust control.

The default is by majority if there are three or more trustees and unanimous if there are only two. It is possible to restrict the distribution of assets by a co-trustee who is also a beneficiary, for example. Beneficiaries are protected from creditors by this provision. Where creditors have no mandatory right to the assets. Beneficiaries are also protected from themselves by this provision.

Having a skilled estate planning attorney on your side will be helpful. If you need to appoint more than one trustee in your trust. The co-trustees of a trust may get along and agree on the management and distribution of trust assets, but this is only sometimes the case. They may not be able to make a peaceful decision. This should be considered in your trust document.

A trust’s language should specify how to resolve disagreements without conflict. In the best-case scenario, court intervention helps to resolve a dispute. When co-trustees have severe competition, the trust administration may stand at a standstill.

They may attempt to remove another co-trustee in such cases. And they may need help to agree on the distribution or management of trust assets. This can negatively impact trust beneficiaries. Trust assets can remain stranded in years of litigation instead of being resolved. Reviewing your trust document every few years allows you to plan for potential trustee disagreements.

 

Conclusion

Their role in trust administration and estate planning is essential to success. Trust management aims to ensure a smooth transition by sharing responsibilities and bringing diverse expertise.

Choosing a competent and trustworthy co-trustee from diverse sources. Such as friends, family, or professional advisors, is essential. The co-trustee agreement guides:

  • How co-trustees allocate responsibilities,
  • Make decisions,
  • Resolve disputes,
  • And compensate one another.

Shared decision-making, distributed responsibilities, continuity, and collaborative expertise are all advantages of co-trusteeship. Communicating effectively, addressing conflicts of interest, and making decisions without competition. Addressing the incapacity or death of a co-trustee is a challenge to consider and manage.

They are responsible for administrating a trust and complying with regulatory requirements, a responsibility they should take seriously.

Hedy Ghavidel

HEDY GHAVIDEL Managing Attorney  Roseville Office  1-866-471-6981  info@attorneysre.com Bio...

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