When a trust is created, one designates a trustee. A trustee is responsible for overseeing the trust in the best interest of its beneficiaries. If there is more than one trustee, they are called ‘co-trustees’. The co-trustee model comes with its advantages and disadvantages – which we will discuss below.
Depending on how complex the trust is, the co-trustees duties may not consist of much more than distributing trust assets to beneficiaries upon the grantor’s death and doing a final trust accounting. In other cases, such as with more complex trusts that last for years, co-trustees have more obligations, like maintaining trust property, filing and paying trust taxes with trust funds, and overseeing investments. For large estates, some people choose to hire a professional trustee.
One of the most important parts in setting up a trust is selecting your trustee(s). If the trustee is unqualified or unreliable, the impact on beneficiaries could be significant. Potential problems range from sloppy record-keeping that leaves beneficiaries uncertain and slow administration that may delay distributions to a significant loss in value of the trust assets through mismanagement or outright theft. On the other hand, selecting a qualified and reliable trustee can help ensure your trust is carried out the way you intended it to be.
Almost anyone that is not a minor can be a trustee (or co-trustee). If you’re the grantor and trustee of your revocable living trust, you may also appoint someone to serve as co-trustee with you. For example, you and your brother could serve as co-trustees of a family trust. You can also name a person to take over as a co-trustee in your place when you die – which is called a successor trustee. It is most common for a person to serve as trustee of their own revocable trust while they are living.
It’s important to ensure that co-trustees are selected for the right reasons. Some people will appoint multiple co-trustees for the sake of reducing or avoiding potential drama or conflict. Instead of picking one child over the other, they will make all the children co-trustees. If the children do not get along this can create very difficult issues and potentially strain the relationship further.
In some cases, the conflict arises long after the trust is established. Imagine that two grandparents establish a trust for their grandchildren and make the children’s parents successor co-trustees. If the grandparents die and the parents have a nasty divorce, their inability to work together could hurt the beneficiaries of the trust.
Even when the grantor’s reasoning is based on more practical considerations, the use of co-trustees carries special risks which may outweigh any benefits. One way to harness the benefits of co-trustees while minimizing the potential for conflict is to have a trusted, neutral party serve as a co-trustee. An attorney experienced in trust creation can assist you in making the right choice for your family.
Trustees & Cooperation
There are many good reasons for appointing co-trustees. Benefits of having co-trustees include lightening the workload for each trustee, having built in accountability, and the ability to leverage different people’s strengths. If the co-trustees have a good relationship and can manage the trust without conflict, the arrangement can be extremely beneficial.
Unfortunately, life and relationships are fraught with conflict and drama. Co-trustees don’t always see eye to eye on how a trust should be managed. Generally speaking, co-trustees must either agree unanimously or by majority vote in order to make a decision. This is perilous when there are only two trustees – as every decision is either unanimous or a deadlock.
In limited circumstances, co-trustees can act independently. For example, the trust agreement may only allow a co-trustee to serve only in limited roles or circumstances, like when the other co-trustee is unavailable. Other trusts may allow a co-trustee to undertake specific actions individually. Important tasks may slip through the cracks as one trustee assumes the other is attending to them, and this can easily lead to conflict between the co-trustees.
What happens when co-trustees can’t agree on what to do? If co-trustees have disagreements, they can take one another to court and file a written objection, and even ask the court for instruction if they cannot come to a decision. A co-trustee can also try to remove another co-trustee with help from the grantor or the trust beneficiaries, who have the right to petition the court for trustee removal. (Beneficiaries can go one step farther and sue a co-trustee for losses that result from their mishandling of trust administration.)
Resolving disputes among co-trustees is time consuming and expensive. Disputes also have the potential to increase strife between co-trustees (especially if they are family), meaning that further conflict is more likely down the road.