Serving as a trustee for a sibling may seem like a natural and cost-effective decision for families planning their estate, but it comes with complex emotional and legal dynamics. This is especially true when one sibling is notably more responsible than the other, or when mental health, addiction, or financial irresponsibility are part of the equation. In these cases, parents often consider creating a testamentary trust and naming a trusted child to manage it. While it can work, it’s not without challenges.
The Role of a Trustee in a Testamentary Trust
A testamentary trust is a trust created under a will that becomes effective upon the death of the grantor. For example, parents may wish to divide their estate equally between their children but leave one child’s portion in a trust to be managed by the other, more responsible sibling. This trustee will typically be given discretion to distribute funds for the beneficiary’s health, education, maintenance, and support (HEMS) a common legal standard in estate planning.
The trustee must decide whether a request for funds aligns with these purposes. For example, if a sibling says they want to study art in Paris, the trustee must determine whether the request is legitimate or just a cover for a spending spree. This puts the trustee in the uncomfortable position of acting as both a financial gatekeeper and a family enforcer.
The Emotional Toll and Practical Considerations
While a sibling-trustee arrangement might seem practical, it often leads to strained relationships and significant emotional burdens. The responsible sibling may face constant requests, guilt-tripping, or manipulation from the beneficiary. They might also have to make unpopular decisions that can fracture family bonds. Although legally permissible, it places a personal toll on both parties.
Another key consideration is that acting as a trustee involves a lot of work recordkeeping, communication, financial decisions, and possibly dealing with legal or tax professionals. For many people, especially those with careers or families of their own, this can become overwhelming.
Alternatives: Professional Trustees and Their Costs
One alternative is to appoint a professional trustee, such as a trust company or bank. These entities are impartial and experienced in managing trusts, but they typically charge between 1% to 4% annually of the trust’s assets. For smaller estates, this can quickly deplete the trust's funds. Professional trustees are most appropriate for larger estates often several million dollars or more where the value justifies the ongoing fees.
Legal Framework and Statutes
In Texas, testamentary trusts are governed by provisions in the Texas Trust Code (found in the Texas Property Code, Title 9, Subtitle B) and are typically established under the authority of a valid Last Will and Testament. Trustees are held to fiduciary standards, meaning they must act in the best interests of the beneficiary, manage the trust prudently, and avoid conflicts of interest.
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