For an Ohio resident who elects to create a trust-based estate plan, choosing the right trustee to manage your assets is one of the most important decisions you’ll make in your estate planning journey. A trustee plays a central legal and fiduciary role, responsible for managing trust assets and carrying out your instructions as outlined in your trust document. This arrangement should offer peace of mind and ensure that your assets are distributed according to your wishes, safeguarding both your legacy and your loved ones’ futures.
In this blog post, we’ll explore what trustees do, the different types of trustees, legal requirements in Ohio, and the qualities to look for in selecting the right person—or institution—for the job.
What is a Trust?
A trust is a legal arrangement where one party who owns certain assets (the trustmaker or grantor) transfers such assets to a second party (the trustee) to manage those assets for the benefit of a third party (the beneficiary). This relationship is documented in, and governed by, a written document called a trust agreement, which outlines specific instructions and rules for the trust’s operation by its trustee(s).
Why Should You Consider Setting Up a Trust?
Trusts can be established as either revocable or irrevocable. A revocable trust, or revocable living trust, offers flexibility as it can be altered or dissolved during the grantor’s lifetime. Conversely, an irrevocable trust is more rigid, generally removing the assets from the grantor’s taxable estate and locking in the terms set at the time of the trust’s creation.
Trusts offer several advantages, including:
- Avoiding probate – In Ohio, probate litigation can be time-consuming and expensive. Trusts allow assets to transfer directly to beneficiaries without court involvement, which may facilitate a more expeditious transfer following the passing of a loved one.
- Maintaining privacy – Unlike wills, which become public record during probate, trusts remain private. For many Ohio families, protection of their family’s privacy is an important consideration for estate planning. As such, trusts offer an ideal instrument for legacy protection.
- Managing incapacity – A trust ensures a smooth transition of asset management if you become unable to manage your own affairs.
- Tax planning – Irrevocable trusts may reduce estate taxes and shield assets from certain creditors or long-term care costs.
In Ohio, trusts are governed by the Ohio Trust Code (OTC), codified in Ohio Revised Code Chapter 5801 et seq., which provides rules for trust formation, administration, and termination. The OTC aims to ensure that trusts are managed efficiently and in accordance with the intentions of the trustmaker.
What is a Trustee?
A trustee is an individual or institution legally responsible for managing the assets within a trust. The role of a trustee kicks in when the trust is created (in irrevocable trusts), or upon the the incapacity or death of the trustmaker (in revocable living trusts), at which point they take responsibility for the management of the trust’s assets.
Ohio law imposes what is known as a fiduciary duty on trustees, meaning they must always act in the best interest of the beneficiaries with loyalty, prudence, and impartiality. They cannot benefit personally from trust assets unless explicitly permitted by the terms of the trust agreement.
What Types of Trustees Are There?
When developing your estate plan, it’s important to consider several types of trustees:
- Initial Trustee: This person begins managing the trust’s accounts and property immediately. If you create a revocable living trust, you may choose to be the initial trustee. However, for certain irrevocable trusts, you’ll need to select someone else for this role.
- Successor Trustee: This person steps in if the initial trustee becomes incapacitated, passes away, or chooses to step down from their role.
- Co-Trustees: Two or more individuals may be appointed to serve as co-trustees. They share decision-making authority, unless the trust states otherwise.
- Specialized Trustees: For trusts with unique goals (such as special needs trusts), trustees with specialized knowledge or expertise may be appointed.
- Corporate Trustees: Professional entities, such as banks, trust companies or law firms, can serve as trustees. They offer expertise, neutrality and continuity, but may charge higher fees than other types of trustees.
In Ohio, you also have the flexibility to name separate trustees for any subtrusts that are created. For example, you might designate each adult child as trustee over their own share of an inheritance. This allows for individual control of personalized assets without interference from others.
What Are the Duties of a Trustee in Ohio?
A trustee is entrusted with a variety of responsibilities to ensure the smooth operation and legal compliance of the trust. Here’s a breakdown of the key responsibilities under Ohio law, specifically Ohio Revised Code Title 58:
- Managing Accounts and Property Owned by the Trust or Subtrust: A trustee’s role involves management of financial accounts and properties held by the trust. This includes overseeing any investments such as equities in brokerage accounts, as well as ensuring that rental properties are well-maintained, occupied, and generating income. It is crucial for a trustee to invest the trust’s assets prudently, aiming for reasonable growth with minimal risk. Maintaining accurate financial records is key for this process.
- Keeping the Trust Beneficiaries Informed About the Trust: As the trustee works on behalf and in the best interest of the beneficiaries, they must ensure that the trust’s status, including its assets, income, and expenses are periodically and thoroughly communicated. In Ohio, Section 5808.13 of the Ohio Trust Code outlines specific requirements for trustee communication with beneficiaries, ensuring transparency and accountability in trust administration.
- Acting as a Point Person for Trust Matters: The trustee serves as the primary contact for all trust-related questions and concerns. They are responsible for addressing beneficiaries’ inquiries promptly and clearly. This role extends to handling financial and legal matters, such as filing tax returns and representing the trust in any legal disputes.
What Should You Look for in a Trustee?
While legal or financial expertise can be beneficial, these are not mandatory qualifications for a trustee. The most effective trustees display the following attributes:
- Willing to ask for help. A trustee doesn’t need to be an expert in every aspect of trust administration. They should be comfortable seeking assistance from professionals such as financial advisors, tax preparers, and attorneys when necessary. The trust typically covers the expenses for these services. Under Ohio Revised Code § 5808.16(AA), trustees in Ohio have the legal right to engage professional help to fulfill their duties effectively.
- Detail-Oriented. Specific steps must be taken to ensure proper maintenance of a trust. A trustee must be meticulous in compiling inventories of trust assets and keeping precise records of income and expenses. Vague or incomplete information can lead to conflicts with beneficiaries and potential legal issues. Ohio law requires trustees to keep adequate records of trust administration.
- Organized. A trust with numerous assets, beneficiaries and a complex distribution plan can involve many moving parts. An organized trustee must effectively manage these various elements of the trust while keeping personal affairs separate. This separation is crucial to avoid conflicts of interest and to maintain the integrity of the trust.
- Good communication skills. Effective communication is important in trust administration. The trustee must clearly convey information to beneficiaries, deliver necessary reports and updates, and respond to questions in a timely manner. Good communication skills help maintain positive relationships with beneficiaries and prevent misunderstandings. In Ohio, the OTC emphasizes the importance of clear and timely communication between trustees and beneficiaries.
- Follows the rules. Trustees must adhere to state and federal laws, as well as the specific instructions outlined in the trust agreement. While a trust may have provisions to allow for trustee discretion on certain matters, others require strict compliance to the law. Failure to follow these rules can result in civil and criminal penalties. Familiarity with Ohio trust laws and regulations is essential for trustees operating in the state.
Who Can Serve as a Trustee in Ohio?
Selecting a trustee is a crucial decision that can significantly impact the execution of your estate plan. Consider the following options based on your circumstances and priorities:
- Family members. Many people choose family members such as spouses, children, parents, or siblings as trustees. Family trustees often have intimate knowledge of your wishes and values, which can be beneficial when making discretionary decisions. If the trustee is also a beneficiary, they might forgo compensation, potentially reducing trust expenses. However, having a beneficiary serve as trustee could limit the protection of their inheritance. In Ohio, the law does not prohibit family members from serving as trustees, but it’s important to consider family dynamics and potential conflicts of interest.
- Close friends. Trusted friends who understand your values and wishes can make effective trustees. However, friends might be reluctant to get involved in any family conflicts that arise during trust administration. If they’re not beneficiaries, they may expect compensation for their services, which can cause tension with beneficiaries. When considering a friend as a trustee in Ohio, ensure they’re willing and able to fulfill the legal responsibilities of the role.
- Professional third party. Engaging a professional trustee, such as a bank, trust company, or law firm, can offer additional protection for beneficiaries’ inheritances. Professional trustees typically have extensive experience in trust administration and are well-versed in legal requirements. However, professional trustees charge fees for their services, which are usually higher than what a family member or friend may request. In Ohio, many reputable financial institutions and law firms offer professional trustee services.
When selecting a trustee, consider factors such as the trustee’s relationship with beneficiaries, their availability and willingness to serve, and their ability to make impartial decisions. It is also wise to name multiple successor trustees in case your first choice is unable or unwilling to serve when the time comes.
The choice of trustee can be modified over time. As your circumstances change, you may want to review and update your trustee selection to ensure it still aligns with your goals and the needs of your estate plan.
How Do I Name a Trustee?
When creating your trust, you’ll designate your trustee(s) in the trust agreement. You should also consider the following:
- Name at least one successor trustee
- Allow for resignation and replacement
- Outline compensation terms (Ohio allows reasonable fees unless otherwise stated)
Don’t forget to review your trustee designation periodically, especially after major life events—such as a death, divorce, or family conflict.
Can Trustee Duties Be Delegated?
Yes. Under Ohio Revised Code § 5808.07, trustees in Ohio may delegate responsibilities (like investment decisions) to qualified agents, as long as they exercise reasonable care in selecting, instructing, and monitoring them.
What Happens If a Trustee Fails Their Duties?
Failure to perform trustee duties can lead to legal repercussions, including:
- Removal by court order
- Repayment of losses to the trust
- Personal liability
Ohio courts take breaches of fiduciary duty seriously. If beneficiaries feel that a trustee is mismanaging the trust, they can file a petition with the probate division of the Ohio Court of Common Pleas to request removal.
Ready to Choose the Right Trustee?
At Rhodium Law, we understand the challenges involved in choosing the right trustee for your estate plan. Our experienced team can guide you through the selection process, helping you weigh the pros and cons of different trustee options and ensuring your choice aligns with Ohio law and your personal values and goals.
We can also assist in drafting clear, comprehensive trust agreements which outline the trustee’s duties and responsibilities, reducing the potential for future conflicts or misunderstandings. If you’re considering creating a trust or reviewing an existing one, we’re here to help you make informed decisions that protect your assets and provide for your loved ones. Schedule a complimentary initial consultation today, or call us at (216) 699-8145.
