Estate Planning Myth vs. Reality #7 - Does Your Spouse or Other Beneficiary Need a Co-Trustee?

Estate planning myth: A Co-Trustee provides checks and balances while administering a trust and will prevent your spouse or other beneficiary from making bad decisions and squandering their inheritance.

Estate planning reality: In the real world I'm really not a big fan of naming Co-Trustees. Why? Because two or more of anything adds multiple layers of complexity and in the case of two Trustees it adds different personalities, experiences and overall goals. The end result is often a lawsuit waiting to happen.

The recommendation: Co-Trustees should only be used under the following limited circumstances:

1. When state law requires it. In some states a Co-Trustee is necessary to insure that the asset protection benefits of a lifetime trust will work if needed.
2. When you only have two children and they get along. Of course this will only work if your children really do get along.
3. When you have a blended family and want to control what happens to your estate if you predecease your spouse. In this situation a Co-Trustee can insure that your estate goes where it's supposed to go.

And when should Co-Trustees be avoided?

1. When you leave everything to your first and only spouse. If you're afraid that your spouse won't be able to handle administering the AB Trusts or ABC Trusts after you die, then don't be. In my experience they all figure it out just fine. In fact, I had one client who was so upset that her husband of over 40 years named a bank as her Co-Trustee that she spent thousands of dollars to go to court and get the bank removed and her children supported her the entire way because they couldn't believe it either.
2. When you only have two children and they don't get along. This is a definite lawsuit waiting to happen. In my experience if the children didn't get along while the parents were alive, then they will absolutely despise each other after the parents are gone.
3. When you're concerned that a beneficiary really will squander away their inheritance. Then don't name the beneficiary as a Co-Trustee with their sibling or name the sibling as the sole Trustee. Instead, designate an outside third party such as a friend, attorney, bank or trust company, or a more distant relative as the sole Trustee.

• What is a Trustee?
• What Does a Successor Trustee Do After the Trustmaker Dies?
• How to Choose a Successor Trustee
• Pros and Cons of Appointing Co-Trustees