Dividing Up the Responsibilities

One of the most basic decisions everybody must make when designing an Estate Plan is to name a Successor Trustee: someone who will have the responsibility to manage your assets in the event of incapacity and upon death.  It is prudent to also name alternate Successor Trustees in the event that the Successor Trustee named is unwilling or unable to act as Trustee.  Although it is common for clients to name one person or institution to act as Trustee at a time, in certain circumstances it may be appropriate name multiple persons or institutions simultaneously.

Acting as a Trustee is a big responsibility and thus some clients will name two or more people as Co-Trustees to share the responsibility.  In such circumstances, the clients will give any of the Co-Trustees the power to act independently so that whoever is available at a given time to carry out a task can handle the issue on behalf of the entire trust.

In other instances, clients are concerned about checks and balances and thus require that all Co-Trustees must act unanimously or by majority vote on every issue.  While this does ensure that every action is agreed upon by at least two people, it is a less efficient method for carrying out certain tasks, especially if some of the Co-Trustees are unavailable or out of town.  Furthermore, if the Co-Trustees cannot agree on a particular course of action, there may be a stalemate requiring court intervention.

Some clients may divide the duties of the Trustee among various individuals.  For example, the clients might give one Co-Trustee the authority to handle the investments of the Trust (the "Investment Trustee") and give another person the authority to handle questions of when and how much to distribute to the beneficiaries of the Trust (the "Distribution Trustee").  This can be an effective asset protection tool where the beneficiary of a trust may be named as the Investment Trustee to control how the Trust assets are managed but some independent third party is named as the Distribution Trustee to prevent a creditor from being able to force the beneficiary to distribute assets.  However, such a division of duties can also create problems as the Distribution Trustee might be held liable for the actions of the Investment Trustee and vice versa.

While there are numerous possibilities with Co-Trustees and the division of duties, such planning adds a layer of complexity and therefore some clients – after exploring the various options – decide to keep everything simple by naming only one Successor Trustee at a time.