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Why Siblings Should Never Be Appointed as Trustees

The blog below was originally posted by Richard C. Salmen, CFP®, CFA®, CTFA, EA in 2010. I am reposting it because, despite my strong admonitions, numerous clients insist on doing this. I tell my clients my job is to consider all the horrible things they do not want to think about and help them develop a plan to avoid those situations. Unfortunately, too many clients cannot accept this reality as a possibility. Please do not do this to your children.

"Last week I met with one of my clients who is considering revising her living trust. Here are the relevant facts: My client is a divorced female in her late sixties who retired from the federal government in the late 1990’s. She started a successful solo consulting practice and is still self-employed and plans to work to at least age 70. She is in excellent health and has two daughters in their 40’s.

Daughter number one is a successful corporate executive who is the employer of daughter number two. Daughter number two has three children and has never managed her financial resources well. Daughter number one allowed daughter number two to move in with her about four years ago to help her get back on her feet financially and has never left. Daughter number two’s middle child is in his mid-twenties and has not held a job for over a year. He expects his mother, daughter number two, to pay his rent, car insurance, cell phone bill, etc. and she continues to do so even as she lives with her financially savvy sister due to never having enough money.

Here is where the estate planning/financial planning dilemma rears its ugly head. My client’s living trust leaves daughter number one her share of the estate outright and puts the inheritance of daughter number two in trust for her lifetime. Can you guess who is the trustee for daughter number two? If you guessed her financially savvy sister, daughter number one, you get a gold star.

When I explained to my client that she is putting daughter number one in an untenable position by making her trustee, she asked me what I meant. I asked her to imagine what Christmas dinner is going to be like for the family after she is gone. Sister number one will have had to tell her less financially savvy sister that she cannot have a distribution from the trust to pay for her adult child’s rent, cell phone bill or car payment. Sister number two will always feel like she is begging for what she believes should have been hers to do with as she saw fit. Meanwhile, she sees sister number one flush with the cash she received from her mother.

My advice to clients: Do not set your children up to hate or at the very least resent each other. Consider putting the money for all of the children in some form of trust if you believe one of them really needs it. Nine times out of ten the financially savvy sibling(s) will understand why their parent(s) set it up that way and have no resentment. And, please, think long and hard before putting one child in the position of being a trustee for their sibling(s). We are asked time and again to take over as successor trustee when these sibling relationships are being torn apart by the ill-advised trusteeship."

Live with your bags packed!


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