Two Trusts Worth Considering an Independent Trustee For

Independent Trustees are persons and/or entities that are responsible for administering your trust, but are not named as beneficiaries. While some trusts require independent trustees, others use independent trustees to primarily avoid a conflict of interest that may otherwise exist if the Trustee were to also be a beneficiary of the trust.

Why is there a conflict? Because the Trustee-Beneficiary may be inclined to treat other beneficiaries less favorably in order to increase the Trustee-Beneficiary’s share of the pie.

To illustrate I have included two trusts where this situation may arise:

QUALIFIED TERMINABLE INTEREST PROPERTY (“QTIP”) TRUST.

Under a QTIP trust, commonly used in a blended family situation, the Trustee is to provide income for the surviving spouse and may distribute the principal to the surviving spouse in limited circumstances. The remainder of the trust’s assets (i.e., what’s left over) is to go to the deceased spouse’s children – the stepchildren of the surviving spouse. For that reason, a rift may form between the stepchildren and the surviving spouse who is viewed as spending their “inheritance.” To relax this tension, an independent trustee or third-party may be appointed.

SPECIAL NEEDS TRUST.

When a parent has multiple children, but one of them has a severe and permanent disability, the parent often leaves a greater portion of his or her assets to that special needs child by placing it in a trust. This results in the non-disabled children receiving a smaller portion of their parent’s estate (at least initially). In many special needs trusts, when the special needs child passes away, the surviving children usually receive whatever is leftover (i.e, the non-disabled children are the remainder beneficiaries). For that reason, if one of the non-disabled children is appointed as Trustee then he or she may be much more strict in how or when distributions are made to the special needs child. And, unlike the QTIP Trust mentioned above, the Trustee typically has much broader discretion – creating the potential for none of the assets to be distributed to the special needs child to maximize the benefit for the remaining children. Once again, to avoid this situation an independent trustee may be appointed.

If you have any questions about Trusts or about Estate Planning in general, then please feel free to contact Joseph Lento at Perennial Trust by calling (781) 202 – 6368 or emailing jlento@perennialtrust.com. You can also download our Free Estate Planning Guide. Thanks for reading!