Estate planning is an important part of life, and one of the most important decisions you will make is choosing a trustee for your living trust. A trustee is responsible for managing your assets and distributing them to your beneficiaries according to your wishes after you pass away.
Many parents choose to name their children as co-trustees of their living trusts. This may seem like a good idea, but there are a number of potential pitfalls to be aware of.
One of the biggest risks of having children as co-trustees is the possibility of disagreements. Even the best families can have conflict, and when it comes to money, matters can become even more complicated.
If your children cannot agree on trust-related decisions, it can lead to gridlock and delays. In some cases, it may even require court intervention to resolve the dispute. This can be expensive and time-consuming, and it can also damage family relationships.
- Lack of experience
Another potential pitfall is lack of experience. Managing a trust is a complex task, and it requires a good understanding of financial and legal matters. If your children do not have the necessary experience, they may make mistakes that could harm the trust and its beneficiaries.
- Undue influence
If one of your children has more power or influence over the others, there is a risk that they may pressure their siblings into making decisions that are not in the best interests of the trust or its beneficiaries.
This is especially a concern if one of your children has a financial problem or addiction. They may be tempted to use trust assets to fund their own needs, even if it is detrimental to the other beneficiaries.
If one of your children becomes incapacitated, it can make it difficult or impossible for them to fulfill their duties as trustee. This can lead to delays and disruptions in the administration of the trust.
What can you do to avoid the pitfalls of having children as co-trustees?
If you are considering naming your children as co-trustees of your living trust, there are a few things you can do to minimize the risks:
- Talk to your children about your expectations and make sure that they are all willing and able to serve as co-trustees.
- Consider naming a professional trustee, such as a bank or trust company, to serve as a co-trustee with your children. This can help to ensure that the trust is managed properly, even if your children disagree or become incapacitated.
- Include clear and concise instructions in your trust document regarding how your children should make decisions and manage the trust assets.
- Meet with an estate planning attorney to discuss your options and develop a living trust that is tailored to your specific needs and circumstances.
These three cases illustrate some of the difficulties involved in having two captains rather than a captain and navigator.
- In re Marriage of Smith (2012): In this case, the husband and wife named their two adult children as co-trustees of their living trust. After the husband died, the wife and two children could not agree on how to manage the trust assets. The wife filed a petition with the probate court, seeking to remove one of the children as trustee. The court agreed to remove the child, finding that there was a "breakdown of trust" between the child and the other beneficiaries.
- In re Estate of Miller (2015): In this case, the decedent named his two adult children as co-trustees of his living trust. After the decedent died, the children began to argue about how to manage the trust assets. One of the children filed a petition with the probate court, seeking to remove the other child as trustee. The court agreed to remove the child, finding that the child had breached his fiduciary duty by using trust assets to pay for his own personal expenses.
- In re Estate of Brown (2017): In this case, the decedent named her three adult children as co-trustees of her living trust. After the decedent died, the children could not agree on how to distribute the trust assets to the beneficiaries. The children filed a petition with the probate court, asking the court to resolve the dispute. The court found that the children were unable to act in the best interests of the trust and its beneficiaries, and it appointed a professional trustee to manage the trust assets.
These cases illustrate the importance of carefully considering the potential pitfalls of naming children as co-trustees of a living trust. If you are considering naming your children as co-trustees, it is important to discuss your options with an estate planning office like ours.
- The three cases I cited are all from California, but the principles they illustrate are applicable to other states as well.
- It is important to note that not all cases involving children as co-trustees are negative. In many cases, children are able to work together effectively to manage the trust assets and distribute them to the beneficiaries according to their parents' wishes.
- However, it is important to be aware of the potential pitfalls and to take steps to minimize the risks. For example, you may want to consider naming a professional trustee to serve as a co-trustee with your children.
- If you have any questions or concerns about naming your children as co-trustees, please consult with an estate planning attorney.
Naming your children as co-trustees of your living trust can be a good way to keep the trust in the family. However, it is important to be aware of the potential pitfalls and take steps to minimize the risks.
If you have any questions or concerns about naming your children as co-trustees, please consult with our office and make an appointment at (949) 305-8642.