What is a Co-Trustee?
A co-trustee is an individual or entity appointed to jointly administer a trust alongside one or more other trustees. Co-trustees fully share the fiduciary responsibility of managing, investing, and distributing the trust’s assets according to the terms set forth in the trust and other relevant laws. Co-trustees can be delegated to such responsibilities as joint administration, fiduciary duties, decision making powers, delegation, and beneficiary relation-handling. Joint administration allows co-trustees to work together to manage the trust assets, including making investment decisions, handling financial transactions, and maintaining the trust’s accounts. Additionally, both trustees in a co-trustee relationship owe a fiduciary duty to the beneficiaries of the trust. This means that co-trustees are obligated to act in the best interests of the beneficiaries, exercise prudent judgment, and avoid conflicts of interest. Any decisions regarding trust the must be made jointly by all co-trustees. Co-trustees must also agree on how to delegate power, as well as communicate effectively together with beneficiaries regarding distributions.
Below we describe some issues that can typically arise in the situation of assigning co-trustees:
- Disagreements and Delays: Co-trustees may disagree on decisions or interpretations of the trust document, leading to delays in trust administration.
- Shared Liability: Each co-trustee is jointly responsible for the management of the trust, meaning if one makes a mistake, all co-trustees could be held liable.
- Increased Legal and Administrative Costs: Managing co-trustees involves more legal and administrative tasks, leading to higher costs.
- Family Conflicts: In family trusts, appointing siblings or other family members as co-trustees can lead to personal conflicts or heightened tensions, potentially damaging relationships.
- Bias and Favoritism: Co-trustees may act in favor of certain beneficiaries, increasing the risk of bias and disputes.
- Inefficiency: A single trustee can administer a trust more efficiently since decisions do not require multiple people to agree.
First glance into co-trustees in Wisconsin
At first glance, co-trustees may seem like a great check and balance on your trust when consulting with your trusts attorney. However, this is the case only if your co-trustees are in absolute sync with all decisions regarding your trust at all times. Often times, settlors want to designate co-trustees who are both members of the same family. In the moment, and ideally, this would work great. Unfortunately, family members don’t always get along and leave your trust in a complex situation. There are many issues that can come about when you designate co-trustees. For starters, co-trustees can disagree on decisions or interpretations of the trust document. Such a disagreement can lead to delays that hinder the administration of the trust.
Electing for co-trustees can have legal and financial implications. Each co-trustee you elect is jointly responsible for the management of the trust. This means that if one trustee makes a mistake or acts negligently, all other trustees could be liable. Involving more trustees can also lead to increase legal and administrative costs, due to co-trustees involving more than one person, meaning additional meetings, documents, and potential legal advice.
Co-trustees can result in irreparable personal relationship damage and changes in dynamics. In family trusts specifically, appointing siblings as co-trustees or other family members can cause conflict or heighten already existing tensions. With only one trustee, these risks are eliminated, as only one person has the power to make decisions on your behalf, not multiple.
Like with only one trustee, co-trustees can result in bias and favoritism. Co-trustees may act against one another to act in favor of certain beneficiaries. Though this risk exists with any trustee, the risk is increased the more trustees you designate.
Co-trustees can also affect practical administration of a trust in the forms of simplicity and efficiency. Sole trustees can often administer a trust more efficiently as they don’t need to seek the agreement of others. Furthermore, having a single point of responsibility simplifies the administration and accountability aspects of trust management.
Recommendations
If you insist on having co-trustees, ensure that your trustees are on the same page on what your wishes are and how to oversee them. Frequently discuss issues of conflict and ensure both parties will be on the same page upon your passing. Additionally, managing co-trustees can require more coordination, so be aware that designating a co-trustee could complicate simple tasks for those you leave behind.
Consult with your estate planning attorney to ensure clear guidelines are set out in the co-trustees’ powers. Include how you would want decision making processes to be conducted among co-trustees, as well as potential conflict resolution powers.
In conclusion, while the idea of appointing co-trustees may initially appear to offer a safeguard through shared responsibility, the reality is often far more complex and fraught with potential challenges. The dynamics of interpersonal relationships, particularly within families, can introduce significant complications that undermine the trust’s effective management. Disagreements among co-trustees can lead to delays, miscommunications, and even legal disputes, all of which can jeopardize the beneficiaries’ interests and the overall integrity of the trust.
Furthermore, the additional layers of responsibility and coordination required in a co-trustee arrangement can create inefficiencies that detract from the primary goal of trust management: to ensure a smooth and effective transition of assets according to your wishes. The risks of bias, favoritism, and liability among co-trustees can complicate matters further, diminishing the very protections you intended to create.
Ultimately, it is crucial to consider the long-term implications of your choices regarding trust administration. The decision to appoint multiple trustees should not be taken lightly; it requires careful consideration of the individuals involved, their ability to communicate effectively, and their willingness to act in harmony for the benefit of the beneficiaries. Consulting with an experienced attorney in trusts and estates can provide invaluable insights tailored to your unique situation, helping you navigate these complex waters. By prioritizing clarity and simplicity in your trust’s management structure, you can better ensure that your wishes are honored, your beneficiaries are protected, and the legacy you leave behind is one of care and consideration.
