Monthly Mission Insight: Co-Trustees: The Good, the Bad, and the Potentially Ugly

Co-Trustees: The Good, the Bad, and the Potentially Ugly

When shared trusteeship works – and when a Trust Protector may be the better fit

Naming co-trustees can sound fair and prudent. A family may want the personal knowledge of a relative combined with the experience of a professional trustee. Parents may also want two children to share responsibility equally.

Sometimes that combination works. But two trustees do not automatically provide twice the protection. Shared trusteeship can also bring duplicated work, divided accountability, added expense, delayed decisions, and – when the trustees cannot agree – deadlock.

The better question is not how many people should be named. It is what roles the trust actually needs.

The Good: Complementary Strengths

A family member may know the beneficiary and family history. A professional trustee may contribute administrative systems, financial experience, recordkeeping, objectivity, and continuity. Co-trustees can also provide a meaningful check on one another.

The arrangement works best when the trustees communicate well, understand their fiduciary duties, and have clearly defined authority.

The Bad: Shared Title Means Shared Responsibility

A co-trustee is not merely an advisor, family liaison, or honorary second signer. Each co-trustee generally shares fiduciary responsibility and must remain appropriately involved.

That may surprise a family member who expected the professional trustee to “handle everything.” Trusteeship can require reviewing accountings, considering distributions, signing documents, monitoring assets, and questioning actions that appear inconsistent with the trust. It can also put a relative in the uncomfortable position of denying a request or challenging the other trustee.

Shared administration also takes more time. Decisions must be coordinated, third parties may require both signatures, and beneficiaries may receive mixed messages. The arrangement may therefore cost more without producing better decisions.

The Potentially Ugly: Deadlock

The most serious problem arises when two co-trustees disagree. Under Arizona law, co-trustees who cannot reach unanimity may act by majority. With only two trustees, however, neither one constitutes a majority. Unless the trust provides a tie-breaker or assigns final authority over the issue, the result may be a stalemate.

The disagreement might involve a distribution, sale of a residence, family business, investment strategy, or caregiver payment. Neither trustee has to be unreasonable. They may simply interpret the trust differently while bills, taxes, property, and beneficiary needs cannot wait.

Making Co-Trusteeship Work

Co-trusteeship is not inherently a bad choice. Mission Management & Trust Co. is able and willing to serve as co-trustee when the arrangement is appropriate and can be structured to work effectively.

Ideally, the trust agreement clearly allocates duties, authority, and responsibility. It should address whether the trustees act jointly or independently, who handles recurring administrative functions, how major decisions are made, and what happens when they disagree.

If the trust does not provide sufficient direction, Mission will generally require a separate written agreement delineating the co-trustees’ respective duties and responsibilities. The agreement must be acceptable to and agreed upon by all parties, including the qualified beneficiaries, and cannot override the trust or governing law.

Depending on the circumstances, Mission may also require the other co-trustee to delegate appropriate authority to Mission. In some instances, an individual co-trustee will be expected to obtain and maintain fiduciary liability insurance.

Co-trusteeship involves additional communication, coordination, documentation, monitoring, and risk management. Mission therefore charges an additional fee for co-trustee service.

Would a Trust Protector Be a Better Fit?

Sometimes the family does not truly need two people administering the trust. What it wants is oversight, continuity, or a way for someone independent to intervene if circumstances change.

One trustee paired with a carefully empowered Trust Protector may be the cleaner alternative. A Trust Protector does not ordinarily participate in daily administration. Instead, the trust grants specific powers, which might include reviewing accountings, approving an extraordinary transaction, resolving a defined dispute, removing and replacing a trustee, or modifying administrative provisions in response to changes in law. Arizona law recognizes the role and gives a Trust Protector the powers conferred by the trust instrument.

Those powers should be stated clearly and should not duplicate or conflict with the trustee’s authority. The document should also address consultation, disagreement, compensation, conflicts, and succession. Otherwise, an overreaching Trust Protector can create the same bottleneck the structure was intended to avoid.

Mission Can Serve in Either Role

• Mission can serve as co-trustee under an appropriately structured arrangement.
• Alternatively, when another person or institution serves as trustee, Mission can serve as Trust Protector.
• As co-trustee, Mission shares responsibility for administration. As Trust Protector, Mission exercises only the oversight or intervention powers granted by the trust.
• Either appointment is evaluated case by case after review of the trust, governing law, proposed authority, compensation, succession provisions, and practical circumstances.

The right structure depends on the work to be done, the oversight needed, and who is best equipped to fill each role.

Note: This article is for general educational purposes only and is not legal, tax, investment, or public-benefits advice. The authority and responsibilities of co-trustees and Trust Protectors depend on the trust agreement, governing law, and particular circumstances.