DON’T CHOOSE THE WRONG TRUSTEE

By: Aaron Swimmer, Esq.

So you made the big decision to transfer your business (or real estate) to a Trust. Now it’s time to choose a Trustee.

You have successfully owned and operated your business and have established an estate plan with Trusts in place to utilize all the benefits that Trusts impart. This has cemented your plan to pass the business to your children. Every successful business has a boss and you have been that person, strategically operating your business for profit and long term survival. While that has been a successful formula so far, it’s the very thing which makes it difficult to choose who will be the Trust’s Trustee. In other words, who’s going to run your empire, for the benefit of your kids, when you’re gone?

Consider what’s going to happen when you die (or worse). The Trustee assumes control of your business and is now responsible for the enterprise’s proper management and continued success, so that your children eventually will inherit a prospering asset! Oh, and your business’s trusted longtime managers and your wonderful but inexperienced spouse has no strategic experience guiding the business.

This synopsis depicts the importance of the Trustee. Business owners do not always fully comprehend the ramifications of transferring their business to a Trust. As a business owner, you may have a thoughtful succession plan in place with respect to the key employees who will operate your business when you are no longer able to do so. However, when assets are transferred to a Trust, the Trustee holds legal title to the Trust property, and ultimate fiduciary responsibility. The Trustee’s business decisions will unquestionably affect your carefully designed plan, by the successful or unsuccessful guidance of the business. If your Trustee is uninterested, too busy with other accounts, or semi-incompetent, chances of a happy outcome for your kids will begin to narrow.

Now that I have you nervous, here are some issues to consider in choosing the right Trustee: 1) Do family or nonfamily members own a piece of the business and how will they get on with their Trustee as co-owner? 2) Are there key employees on whom the business depends and will they continue to work for your Trustee after you are gone? 3) Does the nature of the business require a Trustee with industry specific expertise about what sort of professional business management the company should maintain or bring on board? 4) How long do you intend for the Trust to exist, years or generations; in other words, how long will a Trustee be managing the Trust? 6) What if the Trustee performs poorly? Should beneficiaries have a role? 7) Will tax considerations, requiring an “independent” Trustee, affect your decision?

There are a wide array of differing potential Trustees to choose from, ranging from individuals to a corporate Trustee. Your Trustee could be a family member, long-term faithful employee, an unrelated person or an individual professional fiduciary. As well, Professional Trust companies offer a range of services and many have expertise often not found in even a talented single individual. As you wade through the process, you may find that given the complexities and headaches of running a business, not all potential Trustees are willing to assume the responsibility you are offering. There is no one size fits all Trustee.

So take the time to carefully consider these issues before funding your Trust with ownership of your family business. Your family is depending on it!