Does the Glass Slipper Fit?

2016
Considerations for Selecting a Trustee

BY ROMAR CARL DIRECTOR, WEALTH IMPACT PLANNING

Why the glass slipper metaphor?

We are all familiar with the Cinderella story. Picture yourself carrying the beautiful, intricate, amazing
glass slipper door to door looking for the one foot that will fit perfectly. This metaphorical glass slipper
represents the combined interpersonal dynamics of your family and loved ones, your individual
passions, goals, hopes and dreams, along with the complexity of your familys estate plan. The
metaphorical foot that you would like the slipper to fit is the person, professional or institution you are
considering appointing as a trustee. As we all know, finding the foot that fits the glass slipper can be
more difficult than expected. There may be those whose foot you want to fit the slipper and there will
likely be those who would like their foot to fit. All the squeezing and pushing cant make the foot slide in
if its not the right fit. Your goal is to find the perfect fit.

The Decision:
You might be at the crossroads today, trying to determine who to appoint as trustee and/or co-trustee
of a newly created trust. Or, you may have already selected your trustees. In either circumstance, you
may want to reflect on whether your approach to this decision was thorough and informed. This article
is intended help you think through the major issues. Have you pondered long and hard on the decision,
but are still unsure of your selections? Or have you taken the opposite approach, choosing the first
name that came to mind or the first recommendation you received. Selecting the appropriate trustee is
crucial to ensure your estate plan is administered in a manner that accurately reflects your intent, but is
often minimized when contemplating all the other complex discussions and decisions involved in
establishing a trust agreement.

Your Unique Needs:

No two families are the same. Each family member has distinctive perspectives, feelings, ambitions,
passions and knowledge. Family units are complex; spoken and unspoken expectations and ways of
interacting with one another exist. Sometimes strong emotions guide decisions and sometimes strong
personalities dominate. Underlying resentments might be present alongside unbreakable bonds of love.
When you combine the characteristics of your family with the complexity of your estate plan, the result
is a unique dynamic with special needs requiring a trustee with a complimentary skillset.

You may need a trustee who has a particular understanding of your family business. Perhaps there are
special needs in your family that a trustee should understand. Your trustee may need in-depth
knowledge of your specific industry or culture. It might be important that your trustee is available to
meet person-to-person. Your trustee may need to be good with investments or have good contacts or
partners who can manage your investments. Perhaps, interpersonal skills will be a must, along with a
heavy dose of common sense and specific understanding of your purposes, goals and values.

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 Does the Glass Slipper Fit? 2016
Considerations for Selecting a Trustee

BY ROMAR CARL DIRECTOR, WEALTH IMPACT PLANNING

Many trusts are designed with specific tax objectives and goals, and typically your trustee should be able
to understand the importance of these tax motives. Your trustee may need the ability to work with
beneficiaries who might try to take advantage of the trust assets, at the expense of other beneficiaries
and in ways you wouldnt approve. In such cases, the better the trustee understands you and your
reasons and expectations for the trust, the better the trustee will be able to make decisions as you
might.

Sometimes trusts are established with broad discretionary powers granted to the trustee in order to
assist them in accomplishing the overarching goals of the trust. In these cases, a trustee who can think
outside the box may be of paramount importance. You may need a trustee who has the business
acumen and judgment to consider complex and competing issues. Bottom line, it is important to
recognize that your family, your assets, your goals and your values are unique. Therefore, the best fit to
serve as your trustee will also have a unique set of qualifications and skills that will match your needs.

Trustee Qualifications:
What skillset and qualifications should your trustee have? Finding the answer begins with having a clear
understanding of your familys unique needs. Some of the more important qualifications and
characteristics of a trustee are:

Trustworthiness Appropriate Judgment / Common Sense

Attention to Detail Knowledge and Understanding of Trust Law & Fiduciary Duties
Investment Experience & Knowledge Tax Knowledge
Personal Responsibility Unique Expertise
Interpersonal & Communication Skills Time & Desire to Devote
Accounting & Tax Planning Expertise Impartiality & Lack of Potential Conflicts of Interest
Flexibility Ability to Research & Motivation to Learn
While this list is not designed to be exhaustive, it can be referenced in order to help focus your thoughts
and considerations.

Trustworthiness: Above all, a trustee must be trustworthy. The first of twelve personal
characteristics that a Boy Scout strives to embody, as listed in the Scout Law, is trustworthiness.1 A
trustworthy person is one who is reliable, honest, dependable, and who has high standards for
principled and ethical behavior. You are placing title to your assets into the hands of your trustee, so be
sure that they will treat those assets as you would. You should be confident that they will at all times,
have your interests and the interests of your beneficiaries foremost in their mind and heart.
Appropriate Judgment / Common Sense: A trustee is called upon to make important decisions on
a regular basis. It is imperative that your trustee has the ability to approach these decisions with
complete objectivity, emotional maturity, wisdom and knowledge. They must be able to weigh the pros
and cons of various choices and be sure not to miss the forest for the trees. A trustee should be able to

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 Does the Glass Slipper Fit? 2016
Considerations for Selecting a Trustee

BY ROMAR CARL DIRECTOR, WEALTH IMPACT PLANNING

clearly perceive the variables important to a decision and have the ability to recognize when they should
seek outside advice.
Attention to Detail: Trust documents are legal instruments full of language with precise legal
meanings. Often legal consequences can hinge on a single word. A trustee must be able to focus their
attention to the details within the legal instrument, which dictate their rights, duties and responsibilities
along with looking to the lives of the beneficiaries they are there to serve. They must (by law) prepare
detailed accounting and tax records and deliver this information to the required parties. Inaccuracies,
inconsistent recordkeeping and even general disorganization should be red flags for a potential trustee
under consideration.
Knowledge and Understanding of Trust Law and Fiduciary Duties: Serving in the capacity of
trustee is not for the faint of heart. Accepting the role requires the assumption of potentially substantial
liability. Trustees must act within the legal constraints of the governing trust document, along with state
and federal laws. They should have the ability and experience to research state trust code and law, and
understand how it dictates the administration of a particular type of trust. Most importantly, they must
understand fiduciary duty and ensure they always act according to this higher standard of care.
Investment Experience and Knowledge: Trustees are required to invest trust assets in a prudent
manner. They are charged with protecting and growing trust assets. They must understand the relevant
states prudent investor act and behave in accordance with the states laws and its trust provisions.
Trustees must invest in a way that coordinates the interests and needs of all the beneficiaries with the
trust terms and timing of distributions. An understanding of tax law and its implications to the trust and
the beneficiaries can be crucial when making distributions and investing optimally. As fiduciaries,
trustees are generally required to avoid concentrations and to diversify investments to minimize risk.
Attention should be given to the trust provisions that detail the scope of this responsibility.
Tax Knowledge: A trustee should understand the various income and estate and gift tax laws. A
trustee can actually cause a trust to lose beneficial tax treatment (such as a qualified terminable interest
trust, a special needs trust or a charitable remainder trust) by failing to make certain elections or to
meet tax law requirements. While your trustee will likely hire an accountant to prepare tax returns to
assist in these matters, the better your trustee understands these laws, the better they will be able to
keep you abreast of the tax efficiency of the trust. With this knowledge a trustee can help minimize
taxes incurred by the trust and the beneficiaries.
Personal Responsibility: Personal responsibility finds its root in the ability to take ownership for
situations and to identify solutions for issues that arise as opposed to simply identifying problems.
Ideally, a trustee will continually ask him or herself the question what can I do? to improve a situation
or solve an issue.
Unique Expertise: Take a close look at your family and your assets. Ask yourself if you trustee will
need to have any unique expertise or knowledge. Do you have any family members with special needs?
Does your trustee need to have strong business acumen or specific industry experience? Should your
trustee have an understanding of unique cultural perspectives and expectations? It may be beneficial for

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 Does the Glass Slipper Fit? 2016
Considerations for Selecting a Trustee

BY ROMAR CARL DIRECTOR, WEALTH IMPACT PLANNING

your trustee to meet in person with you, your family or the beneficiaries of your trust. Finding a trustee
who has special expertise or knowledge can be a huge benefit to the relationship.
Interpersonal & Communication Skills: Selecting the wrong trustee has the potential to be
disastrous. You are relinquishing control of assets to be managed and cared for by the trustee assets
you worked very hard to accumulate or cherish as family heirlooms. Its possible that your beneficiaries
may feel that these assets should be given to them outright, free of any trust. If this is the situation, the
trustee is now positioned between your beneficiaries and their assets. This scenario can pit family
members against each other and against the trustee. Some trustees may find it difficult to escape this
potentially adversarial position. However, a trustee with good interpersonal and communication skills
can often facilitate a dialog with beneficiaries, so that they view the trust as a blessing, rather than a
burden.
Time and Desire to Devote: Being a good trustee takes time and devotion - much more time than
one might expect. Not everyone will have the skills necessary to be a successful trustee. Perhaps even
more importantly, they may not have the time or desire. Trustees are required to assume a substantial
commitment of service. A considerable amount of time should be spent becoming acquainted with your
family, if they are not already, in an effort to become a trusted family advisor and perhaps even a
mentor to the younger generations. Be sure to discuss the scope of the trustee role in its entirety with
anyone you consider appointing, and make sure they are willing to accept the responsibility.
Accounting and Tax Planning Expertise: Your trustee should have a good understanding of trust
accounting and tax planning. Most states have adopted a version of the Uniform Principal and Income
Act that governs the accounting of trust assets. Your trustee should be familiar with it, regardless of
whether they have hired an accountant. Additionally, since tax planning is often one of the driving
forces in the creation of trusts, your trustee should not only be knowledgeable about your tax planning
goals, but should also be capable of informing you and the trust beneficiaries about associated income,
gift and estate tax implications.
Impartiality: A basic duty of a fiduciary is the duty to act impartially. Your trustee should
understand the significance of this duty. Violation of any of the fiduciary duties can create substantial
personal liability to the trustee. Often a trust will have beneficiaries with competing interests in the
trust. For example, there may be an income-only beneficiary who would like all the assets to be invested
in income-producing investments. Often, the trustee gets to know this beneficiary quite well. At the
same time, there may be remainder beneficiaries some whom the trustee doesnt know well and may
never meet - who will receive the trust assets at an unknown date, perhaps upon the death of the
income beneficiary. These remainder beneficiaries may want the trustee to invest the trust in growth
assets that produce little or no current income. The trustee must consider both competing interests,
regardless of any personal relationship, and invest the trust assets impartially so as to not favor one
beneficiary over another.
Lack of Potential Conflicts of Interests: A trustee has a duty to be loyal. She must administer the
trust solely for the benefit of the beneficiaries, avoiding all self-dealing and conflicts of interest. Many
family feuds originate around just the appearance of a violation. This can be an especially sensitive area

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 Does the Glass Slipper Fit? 2016
Considerations for Selecting a Trustee

BY ROMAR CARL DIRECTOR, WEALTH IMPACT PLANNING

where a family member is serving as a trustee. For example, if the trustee were to authorize an
investment in a business venture that she (or even a relative) is personally involved in, it could be
inappropriate self-dealing. Even if the terms are competitive and the investment proves successful, the
beneficiaries may suspect that an alternative investment would have provided a better return, and that
the trustee did not exercise proper care of the trust assets. A trustee must be comfortable being under a
heightened sense of scrutiny and must make a concerted effort to be transparent.
Flexibility: If there is one thing for certain in life, it is that change is inevitable. Modern lifestyles
today are vastly different than they were even twenty years ago. People and families are mobile; career
changes are common; returning to school later in life is often needed; and family dynamics are
constantly in flux. A trustee must be able to quickly understand and adapt to these continual changes.
When trusts will be in place for multiple generations, the need for a trustee to be flexible is even more
acute. Be sure to consider whether your trustee will be able to anticipate and recognize change and be
appropriately flexible when necessary, while still following your vision for the trust, in both the short-
term and over the generations.
Ability to Research and Motivation to Learn: Your trustee will not know all of the answers. They
will run into questions and issues requiring research and education. A successful trustee will have the
ability to identify when she needs to involve outside advisors, and when she can handle questions
herself, balancing the need for quality advice with preserving the resources of the trust.

Options: (Uncle Joe or the Bank?)

The law does not require any special training or certification to serve as a trustee. However, the type of
trust and certain tax considerations may limit your choice in some situations. Generally, you can serve,
or you can appoint someone you trust, including your spouse, child, family member, trusted friend,
accountant or attorney. In addition, you could appoint a professional, individual trustee or a bank or
trust company. There are pros and cons to each choice. The goal is to align as many of the pros as you
can in the areas that are most important to you and your needs. The following chart may help you think
it through.

Trustee Pros Cons

You or Your Spouse
Immediate Family Member
Beneficiaries may feel more
comfortable coming to you for
distributions
Intimate familiarity with purpose
and goals of trust
No trustee fees
Most common choice for a living
trust.
Fees paid may be lower
Often a personal stake in the trust
success
Intimate familiarity with unique
Beneficiaries may not feel comfortable
coming to you for distributions
Less likelihood of trust administration, legal
and tax knowledge
Possibility of incurring fees for accounting,
investment and legal advice
Incapacity, Mortality
Potentially adverse tax consequences
May lack trust administration, legal and tax
knowledge
Increased potential for conflicts of interests
Possibility of incurring fees for accounting,

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 Does the Glass Slipper Fit? 2016
Considerations for Selecting a Trustee

BY ROMAR CARL DIRECTOR, WEALTH IMPACT PLANNING

family dynamics investment and legal advice

Extended Family Member May have lower fees
Increased likelihood to be familiar
with family dynamics
Less potential for conflicts of
interest
Family Accountant or Potential for increased
Attorney understanding of legal and tax
aspects and purposes of trusts
May have unique expertise
Less potential for conflicts of
interest
Independent Professional May have moderate fees
Trustee Likelihood for increased expertise
in trust administration, legal and
tax knowledge, financial and
estate planning
Potentially Increased ability to
personally get to know the family
(vs. Corporate Trustee)
Objectivity - professionalism
Bank or Trust Company Continuity corporate memory
Objectivity - professionalism
Regulated by law
Investment, Administration,
Accounting and tax expertise
Financial and estate planning
expertise
Potentially adverse tax consequences if also a
beneficiary
Potential for resentment from other family
members & difficulty being impartial
May find it hard to say no when appropriate
Incapacity, Mortality
Less likelihood of trust administration, legal
and tax knowledge
Possibility of incurring fees for accounting,
investment and legal advice
Incapacity, Mortality
Fees may be charged hourly, at standard rates
May be distracted by their full-time job
Potentially less expertise in trust
administration and investments
Incapacity, Mortality
Skillsets among candidates may vary greatly
Incapacity, Mortality
Potential for increased fee costs
Potential to be too conservative
Potential to be impersonal and lack important
family dynamic knowledge
Potential for frequent trust officer turnover

Blending the Trustee Duties and Providing Built in Protection for Beneficiaries:
Many trust documents include language that protects the trust from a trustee who may not be the best
fit. Often the trust will provide that the grantor, grantors spouse or the collective beneficiaries may
remove and replace the current trustee. Another option is to provide for a trust protector, a third party,
who has the authority to provide oversight of the trustee and who can even remove and replace a
trustee on their own. Still another option is to appoint co-trustees and require authorization from both
trustees prior to any transaction or decision. Finally, rather than naming co-trustees, in many states,
you can name one main trustee, responsible for general oversight, but still name other individuals for
specific duties. In that case, the trust document bifurcates the duties of each trustee with directed

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 Does the Glass Slipper Fit? 2016
Considerations for Selecting a Trustee

BY ROMAR CARL DIRECTOR, WEALTH IMPACT PLANNING

trustee language, which allows for one trustee for the purpose of administration and another advisor
for investment oversight.
Power to remove and replace a trustee: Careful consideration should be given when deciding
who will have the power to remove and replace a trustee. When the power lies with the beneficiaries, it
can lead to trustee shopping. If a current trustee is not administering the trust to their advantage,
beneficiaries may repeatedly fire the trustee and hire another, until they find a trustee who will. This
abuse of power could subvert the over-arching goals of the trust. It may be better to place this power
with an independent and objective party such as a trust protector.
Naming Co-trustees: Naming co-trustees may appear to be a solution which will be fair to
everyone. For example, you may consider naming two children, or all of your children, as equal co-
trustees. Sometimes this approach is successful, but it can also increase the time and expense to
administer the trust and lead to contention and disharmony among the co-trustees. Naming an
independent and objective family member as co-trustee along the side of a professional trustee may be
a valid compromise. The family member can provide insight about family dynamics and weigh in on
discretionary distribution requests. Unless the family member has unique investment expertise, it is
often wise to delegate these duties to someone who is more qualified in order to avoid conflict or
possible deadlock between the two co-trustees. It is also often wise to include provisions around how to
handle disagreements between co-trustees.
Having a Trust Protector: Naming someone who is independent and objective as a trust
protector may be helpful. The trust protector can provide oversight of the administration of the trust
and, if necessary, remove and replace a trustee. Just as a trustee should understand the unique family
dynamics, goals and objectives of the trust, so should the trust protector.
Directed trustee language: The inclusion of directed trustee language in the trust document can
provide increased flexibility around associated roles and responsibilities. Many states have adopted
statutory language that permits the bifurcation of trustee duties such that an investment advisor can be
appointed in addition to a trustee who oversees the administration of your trust.
Successor Trustees: Whenever you name someone other than a bank or trust company, you will
face issues of mortality and potential incapacitation. You should consider who will serve as trustee when
your individual trustee is no longer able to serve. You can name another individual to serve as successor
trustee and even name multiple individuals to serve in succession. Naming a bank or trust company as
the final successor is often highly recommended when continuity in trustee succession is a major goal.

Does the Glass Slipper Fit?

Your unique family dynamics, assets, trust objectives and goals will shape the slipper. The unique
qualifications of the trustee will shape the foot. Thoughtful consideration will enable you to feel
confident that your trustee is the most appropriate foot for your glass slipper. May your search end
in finding a relationship that will bless your life and the lives of your loved ones for years and decades to
come.

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 Does the Glass Slipper Fit? 2016
Considerations for Selecting a Trustee

BY ROMAR CARL DIRECTOR, WEALTH IMPACT PLANNING

Romar Carl earned a J.D. cum laude from J. Reuben Clark Law School at Brigham Young University, an
LL.M. in taxation from the University of Washington, a Bachelors degree in Finance from the University of
Utah. Mr. Carl is also a Certified Financial Planner.

1
http://www.scouting.org/about/annualreports/previousyears/2013/2013_oath_law_mission.aspx

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