real estate savvy successor trustee

12 Replies

A colleague of mine is looking for a successor trustee for her trust (i.e., a trustee who would take over after she passes away) who is knowledgeable with managing rental property investments as well as a stock and bond portfolio.  Anyone have any recommendations? 

@Ryan Fox

She would need either a corporate trustee who has the requisite expertise or a professional (attorney or CPA) who understands fiduciary duties and can oversee investment portfolio (but they generally would still retain an investment advisor for the liquid investments).

She's likely not going to find a stranger who is good at both real estate management and investing. Also there is an enormous risk the stranger would not take their fiduciary duties seriously and would siphon off funds through high fees, etc. She should look for trustworthy family members or others involved with the ultimate trust beneficiary. Trust is by far the most important factor for a trustee, they can hire or seek advice on technical aspects of investing if needed.

@Loren Howe - In my experience, family members don't really understand the fiduciary duties of a trustee.  Agree with you that a disinterested natural person trustee may be dangerous.  However, if she went with a bank, the bank would just liquidate the rental property portfolio and invest all of the assets in stocks / bonds.  This would result in tough tax consequences, but at least a bank would better understand fiduciary duties.  So there's the conundrum.  

@Ryan Fox

Most financial institutions and attorneys offer services like you are looking for. It is tough to find a single provider for real estate and the liquid provider.

However taxes are likely of limited consequence as there is a step up in basis after it passes to the estate upon her death. Assuming of course she is below the large lifetime exception which is about 11.5 M if she’s single, double that if married.

The real question to ask is what is the estate plan? There are many important questions to answer before who the trustee is.

@Daniel McNulty - Thank you for reminding me of the step-up in basis.  I remember reading that a long time ago and somehow forgot.  The estate plan is all set up, this trustee selection issue was the only remaining issue.  

@Ryan Fox

As @Lance Lvovsky mentioned, she really has two options. Either go with an institutional trustee or go with a lawyer/CPA who has the expertise to handle the work. 

As Lance eluded to, Note that being a trustee doesn't necessarily mean that the trustee needs to make all the financial decisions. While the trustee has the finally say, it's not uncommon for the trustee to outsource some of the investment decisions to a professional firm. Really depends on the size of the trust.

If she has substantial real estate assets, I would say she is better off finding an attorney/CPA who has experience handling real estate assets. Someone with experience representing family offices might be a good start. Geography could matter as well. 

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

@Chris K. - Thanks for the advice.  Her real estate assets are actually much smaller than her stocks / bonds, and she's actually not concerned if the real estate gets sold off after her death if there are no adverse tax consequences.  

She should start training a few younger family members or younger trusted friend or two to understand the duties and responsibilities.

My parents started training my brothers and I on how to manage their Trust when we were in our early 20's.  We also knew how to manage and keep the books for their 3 rentals.  In the end I was the one that was still living and got it, so I managed their Trust after they had both passed.

My two teens started learning about my Trusts when they were 15 years old.  They meet yearly with the Trust attorney and with my financial manager.  We are doing a major amendment to the Trusts now as I adopted a newborn baby 4 months ago and he needs to be added as a beneficiary and as an alternative Trustee (in case, when he is an adult, the now teens want to pass on the work).  They are doing that with me, making decisions, what % should go to each person, what responsibilities, etc.  They also listen in on calls throughout the year with the financial manager.  They know about stocks, bonds, EFT, CD's etc.  They also mange their own Roth IRAS and how they are invested.  They are both 17 years old now and could do a lot of the Trust requirements themselves now.  They learned tons in the past 2 years!

For managing the real estate, they go to the foreclosure auctions. Go to the property drive bys. We discuss which properties we will bid on and which ones we pass on. Do the cost estimates once we get them. Do a lot of the work and know who we call for the stuff we do not do. They would need to hire a PM for the properties though as they are both too soft hearted to say no to some of the potential renters with sob stories. They track expenses and income. They are learning, one kid likes it a lot more than the other, but together they have a fuller skill set.

Ask around and look at who is in her life that is trustworthy and has enough assets themselves that they won't need to syphon off the Trust.  Train a few Trustees.

Also, for some protection, in my Trusts I have it set up so that while my kids are minors the person who manages the assets is not the person who has custody of the beneficiaries so the 2 person set up helps keep people honest as they can both watch each other.  e.g. what do you need money for that benefits the kids?  What are you doing with that asset an where is the money going?  So you might want to have her consider setting up 2 co-Trustees so they have to agree and can watch each other.  And add a few alternative Trustees, in case they are needed.

@Lynnette E. - Thanks for the suggestion.  Is the trust set up so trustees are only family members, or is there an independent trustee?  This is a very interesting topic, as you don't want your children to lose motivation by being beneficiaries of the trust, and yet you want them to make good financial decisions with the trust assets, or income they receive from the trust assets.  

My colleague's trust will last 365 years because it is a Nevada trust and it will benefit her successive generations.  You can imagine how much things can change within 365 years; it seems the trust should be built to evolve with the times and yet have strong safeguards built in.  I think you're right that having more than one trustee to provide checks and balances is a good idea.

Originally posted by @Ryan Fox :

@Lynnette E.- Thanks for the suggestion.  Is the trust set up so trustees are only family members, or is there an independent trustee?  This is a very interesting topic, as you don't want your children to lose motivation by being beneficiaries of the trust, and yet you want them to make good financial decisions with the trust assets, or income they receive from the trust assets.  

My colleague's trust will last 365 years because it is a Nevada trust and it will benefit her successive generations.  You can imagine how much things can change within 365 years; it seems the trust should be built to evolve with the times and yet have strong safeguards built in.  I think you're right that having more than one trustee to provide checks and balances is a good idea.

 You can use family members to be the trustee or a commercial trustee such as a bank.  I use family members that I train. 

My trustees are also beneficiaries.

No one will care more about how the assets are managed than someone who is also a beneficiary to the trust.

I dont like the commercial trustees because they take such a great percentage of the value of the trust.  In down markets one may have to sell assets just to pay them.

Originally posted by @Ryan Fox :

@Lynnette E.- Thanks for the suggestion.  Is the trust set up so trustees are only family members, or is there an independent trustee?  This is a very interesting topic, as you don't want your children to lose motivation by being beneficiaries of the trust, and yet you want them to make good financial decisions with the trust assets, or income they receive from the trust assets.  

My colleague's trust will last 365 years because it is a Nevada trust and it will benefit her successive generations.  You can imagine how much things can change within 365 years; it seems the trust should be built to evolve with the times and yet have strong safeguards built in.  I think you're right that having more than one trustee to provide checks and balances is a good idea.

 For my Trust and for my parent's trust all the Trustees are family members.  This let's the Trustee manage the assets either directly or through Property managers or financial managers if they do not want to be hands on.  I use the same financial manager my parents used for their trust.  He gives advice and manages the EFTs, stocks, bonds, cd, etc.  Not the real estate, I do that myself.  For my parents the Trustees, their 3 kids, managed the real estate.  

For my parent's trust 2 out of 3 trustees had to agree to sell an asset.  Mine does not have that type of a requirement.


If it was for 365 years, I would probably have each generation vote by subfamily to appoint someone to a Trustee board.  Something like the offspring of original Trustor will each appoint 1 member of their family as Trustee.  Every 5 years the family, include....whatever, adopted....excluding whatever...spouses

...offspring of each of the original children of the Trustor can vote to appoint a new Trustee if they desire to change the Trustee.  Every 50 years after the death of the Trustor the number of Trustees will doubl , then describe how you want the new ones allotted, 2 to each of the original kids families or like Congress, based on family population.

My parents and my Trusts have family as both the Trustee and the beneficiaries.  Trustees are the next generation, beneficiaries are the next 2 generations,  for different things and amounts.  Trusts are liquidated after 2 generations.


Something to consider is who is included and excluded.

My parents trust is firm that no spouse ever gets any benefits and has no right to Inheritance.  The benefits of a deceased beneficiary goes to their kids.  This is good if there is a divorce.  But it may leave out a widow....the benefits go to the kids.


Also because I adopt kids, both our trusts include adopted kids.