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Mistakes to avoid when deciding on a successor trustee

Many things need to be considered in setting up trusts. Of the many questions to be considered, one of the most difficult might be turning over money decisions to someone who doesn't have an emotional tie to the family. Nevada residents, however, have a lot of reliable information and advice available to them to sort out the best approach to trusts.

Choosing a family member as successor is the automatic response for many. That person usually has the helpful insight to handle things as one would prefer. Experts advise it can be a mistake if that person isn't great at recordkeeping and ensuring the reporting is up-to-date. Also, a non-professional might not remain objective in setting aside his or her own interests for the fiduciary decisions that benefit the trust.

The Supreme Court has recently ruled in the case of a trustee of a family trust who borrowed against the trust to further his own business interests. Although his loans were repaid to the trust with interest, his sibling co-beneficiaries sued him for a share of the profits he made on those investments. A state court ruling in favor of the plaintiffs caused the trustee to file bankruptcy for an inability to pay. The bankruptcy court would not discharge his debt, finding mishandling of funds by a fiduciary. The Supreme Court, however, ruled otherwise. Finding no intent to do harm on his part, the justices reversed the lower court ruling.

Despite this new protection of non-professional trustees, a successor trustee must be capable in order to manage the trust as instructed. Decisions must be made in the best interests of the beneficiaries, not necessarily those of the person who set up the trust. The fiduciary rules and regulations require accountability. It may be that a co-trustee who is an experienced professional is a good choice.

Financial security is well worth the effort of careful planning. An approach that provides security and peace of mind will yield an outcome that best suits everyone.

Source: Forbes, "Three Mistakes Individual Trustees Make and How to Avoid Them" No author given, Jan. 16, 2014

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