June 12, 2014
Single Trustee or Co-Trustees?
When a person writes a trust, known as the settlor or trustor, they almost always nominate a successor trustee in the document to assume trusteeship when they are no longer available, e.g. death, illness, etc. Although, there is no legal requirement to name a successor trustee in the trust. A maxim of wills and trusts law is that "a trust will not fail for want of trustee." Thus if no successor is nominated a probate court can appoint a successor. Still, given the expense and time of judicial intervention, people opt to name a successor in their trust to avoid this.
Many clients opt to choose a single trustee instead of multiple co-trustees as a successor. One of the reasons why a single successor trustee is preferable is due to administrative reasons.
The general rule in California is that co-trustees must reach a unanimous decision when exercising their powers. Prob C § 15620. Thus, if there are 2 co-trustees, then those 2 co-trustees must jointly be in agreement as to the decision.
For example, if one wishes to a sell a trust asset such as a house, then the other must be in agreement. While unanimity might not seem like a major hurdle, an old adage goes "reasonable minds can differ." Hence a co-trustee can make a perfectly rational decision but the other co-trustee may nonetheless balk citing an equally defensible rationale. From above, selling real estate can be a tricky predicament. The ebbs and flows of the real estate market are well-known. One trustee might want to wait until the real estate market is white hot. Another trustee might want to sell immediately given the volatility of the real estate market in recent years.
The foregoing is one of the reasons why many clients opt to select a single successor trustee instead of successor co-trustees. To always require that co-trustees be in agreement on matters pertaining to the trust can prove arduous. This is not to say that nobody ever selects successor co-trustees. Some past clients have consisted of a single co-trustee or both co-trustees.
One countervailing argument is that nominating successor co-trustees reduces the risk of mismanagement and waste. The standard beneficiaries of nearly all revocable trusts are children, so by nominating the children as co-trustees, this allocates authority equally to all the children. Hence, a single child cannot, as the theory goes, unilaterally wreak havoc because there are other co-trustees to check their authority. This sentiment has been specifically expressed a few times in the past by clients.
As in many areas of law, the selection of one or multiple successor trustees does not yield an unassailable answer. There are pros and cons to each side of the argument. Still, it is prudent to be informed of these pluses and minuses so a person can make a prudent decision.