The creator or grantor of a trust usually serves as its trustee until death, while naming a successor to administer the trust after death. A parent will often name two or more children as co-trustees or will designate an older relative as co-trustee with a child. This can create problems if the co-trustee duties are not clearly spelled out.
If One Trustee Can't Act
Co-trustees normally must act in concert and exercise their powers jointly. This means, for instance, that both must sign forms for bank accounts and financial transactions. This can be a logistical problem if the trustees are in different states or if one is incapacitated, either permanently or temporarily, and cannot act. A good trust agreement should provide for replacement of a co-trustee who cannot serve for some reason.
If co-trustees cannot agree on the disposition of some trust assets, it may require a court intervention. If one trustee wants to sell some property and distribute cash and a co-trustee wants to retain the property, there is a stalemate. If there are three co-trustees, the majority prevails. However, if co-trustees are assigned equal authority and responsibility in the trust agreement, some third-party intervention will be needed.
One way to avoid co-trustee problems is to name an institution, like a bank or trust company, as the principal trustee, with children or other beneficiaries as co-trustees. That essentially places control of trust with an independent third party, who can be an arbiter if the individual co-trustees cannot agree.
A good trust agreement will clearly define the roles and duties of the trustees and anticipate situations in which two or more trustees may not be able to act together because of physical restrictions or personal disagreements. It should spell out succession for such situations as the death of a spouse, who was named co-trustee with a child.
- Net Places: The Trustee
- Living Trust Network: Selecting Trustees
- Fitzwater Meyer: Revocable Living Trust
- Physician's News: Using a Living Trust as a Will Substitute
- Forbes: Think Twice Before Becoming a Co-trustee of a Family Trust
- U.S. Legal: Co-Trustee Law and Legal Definition
- Law Easy: Co-Trustees Acting Independently