Probate & Trust Law Section Conference Manual ... - Minnesota CLE

Trustee Appointment, Succession and Substitution Provisions (Bedosky)
The following materials contain two sets of sample trustee appointment, succession and distribution
provisions. They represent a composite of provisions drafted for different documents at different
times and for clients with different objectives. Some of the provisions contain alternative language.
We did not include all of the possible alternatives but we did include a sufficient variety to highlight
the nature of the choices they represent.
We do not intend that any of the accompanying sample form provisions be used “out of the box.” As
we will repeatedly stress, these are not boilerplate provisions. They must be read, studied,
understood and coordinated with the remaining provisions of the trust instrument, as well as with the
purpose and structure of a client family’s overall estate, business succession and financial plan.
We have found that we spend a not inconsiderable amount of time addressing these issues with
clients and drafting around our client’s tax and non-tax objectives. While the sophisticated tax and
business succession strategies may appear to provide a sexier intellectual challenge (at least to us),
fiduciary designation and succession is the stuff we deal with nearly every day. No one will
appreciate the tax benefits produced by our meticulous attention to the technical details of the plan if
there is conflict, litigation or improper administration resulting from poor fiduciary choices and the
lack of foresight in planning for fiduciary succession.
The approach we have NOT taken is to treat these provisions as boilerplate or to refrain from
discussing the designation of fiduciaries with our clients. We believe the designation and succession
of fiduciaries are among the most important decisions an estate planning client will consider. In our
experience, we find that most clients do not understand the long-term implications of their fiduciary
choices. We also find that our own prejudices, preferences and predispositions have a significant
effect on our client’s fiduciary choices and the proper methods of planning for future succession.
For example, many clients (and their advisors who for various reasons encourage this point of view)
adopt a default position that excludes corporate and other professional fiduciaries, except as a last
resort. These clients may focus on the anticipated “costs” and their preference not to admit
“outsiders” into family financial affairs. They prefer, therefore, to name family members, and often
the son or daughter who appears to have the most financial or business experience. Of course, the
family fiduciary is also a beneficiary, and it’s right here that problems can arise. Our clients’
preferences are reinforced by a general distrust of large financial institutions (who appear to clients to
place a larger emphasis on accumulating assets under management than they do to providing the
promised extraordinary service once those assets are on the books), the lack of wisdom of so-called
“financial experts” as reflected in their failure to avoid the same heuristic biases to which their clients
are subject, and a failure on the part of the client’s attorneys to explain the duties and responsibilities
imposed on non-professional fiduciaries and the possible consequences to both the client’s family
and the fiduciary personally of such a deficiency in understanding. A matter of fiduciary liability,
our forms generally permit certain conflicts of interest to exist and we exonerate trustees from
liability for engaging in transactions that might otherwise be called “self-dealing.” We also take
steps to minimize the potential tax problems that may arise when a beneficiary is also a trustee. What
we need to discuss with clients, however, is how the appointment of a family member may affect the
nature and balance of family relationships, often long after the client is gone.
For example, how will the trustee-beneficiary react when faced with a choice that favors him at the
expense of other beneficiaries—or favors other beneficiaries at his expense? What are the intrafamily
dynamics in play? Are there latent family disputes going back to events that occurred (or
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