In the old days, trusts tended to be pretty simple. Typically, a trustee was expected to invest the funds conservatively and pay interest to a beneficiary at regular intervals. That was about it. Today, however, trustees are often expected to invest aggressively and successfully in a much more complex market. They may be subject to far more tax, compliance and regulatory requirements. And they may have to provide not for a single beneficiary but for a range of family members or generations, who may have conflicting interests.
Some states have begun changing their laws to encourage the use of “co-trustees”. The idea is to allow trustees to specialize. One can handle complex investments, while another takes care of the tax returns and paperwork. A third trustee might be a family member who is authorized to make decisions about distributions. A family member would be much more likely than a bank, for instance, to be aware that a relative has developed a gambling or drug problem and shouldn’t be trusted with large cash payments.
The new laws say that co-trustees can have limited, specific duties. The key is that one trustee won’t be legally responsible if another trustee makes a mistake.
Some states even allow a trust to have a “trust protector” who has the power to oversee and replace the trustees.
Co-trustees can be a particularly good idea if the trust assets consist largely of stock in a family business. A trustee’s duty is to the beneficiaries, and a trustee might feel it’s in the beneficiaries’ interest to diversify the trust holdings or vote the stock in a particular way, which might conflict with the interests of the family business managers.
Splitting up the duties can solve this problem. For instance, you can give a family-member trustee veto power over large sales of company stock.
If you decide to appoint co-trustees, you might want to provide some guidance for situations where they could potentially be working at cross-purposes. For instance, you might want to specify whether a financial-manager trustee will be allowed to lock up the trust assets for several years in an investment, if that means the money might not be available for the beneficiary’s needs.
