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Potential pitfalls of naming family members as trustees

Estate plans sometimes use Nevada trusts to achieve goals like privacy or reduction of estate taxes. Heirs could also benefit from trusts because these entities shield assets from creditors and divorces. A trust by its nature must have a trustee to manage assets and distribute funds according to the terms laid out in the trust documents. The trustee can be a family member named by the benefactor, an attorney, or an institution like a trust company. Although people might feel inclined to select their spouses or children as trustees, an outside party could present the best choice.

A party from outside the family could possess the financial acumen to manage assets and fulfill accounting duties. Additionally, a professional trustee might not be vulnerable to internal family disputes. For example, naming a spouse as trustee might create resentment among other heirs, particularly stepchildren who suspect that they are not receiving a fair deal. Such complaints sometimes end up in costly legal battles.

A trustee of a trust that hold business shares and has voting rights might need to navigate family members' views about running a business. Heirs benefiting from the business income or their spouses might push for business decisions that promote short-term profits and undermine long-term viability. When a family member is a trustee and is confronted by these pressures, the potential for arguments or legal disputes rises. An institutional trustee might have better success at balancing demands from heirs and executing the terms of the trust.

Talking to an attorney might guide a person toward an appropriate decision when naming a trustee. Legal insights about trust planning could warn a person about possible problems within the family. An attorney might propose strategies that enable some family control of a trust while building in protections that could limit battles over money.

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