One of the most important, and sometimes most difficult, decisions to make is selecting a Trustee of your trust. Normally, while you are alive and competent, you will be the Trustee of your revocable living trust; however, if you become incapacitated or pass away, the successor Trustee you've named will step in and take over the management. Therefore, selecting a Trustee who you trust to be financially responsible but who also can manage a professional relationship with your beneficiaries is important.

Selecting a Trustee requires that you consider whether the person or entity you select will understand the needs of your beneficiaries. For example, if you have young children, you may want to select a responsible Trustee who has some understanding of the financial resources required to care for a minor. If the bulk of your assets is comprised of a small or closely-held business, you may want to select a Trustee who can respond to the needs of the business and determine the best course of action so as to maximize the value of your trust for your beneficiaries. Regardless of who is selected, it is a given that the Trustee must exercise fiscal responsibility or have enough sense to known that he or she needs to retain appropriate counsel to advise him on those types of decisions.

When it comes to selecting Trustees, many select one of the following types of individuals:

1. Family or Friend that the Trustor knows to be responsible
2. A professional such as an Accountant or Lawyer that the Trustor has a relationship with
3. Professional Fiduciaries such as banks/corporate entities that specialize in serving as Trustees

Each type of Trustee has pros and cons with the trade-off usually being skill/expertise versus cost. That being said, just because a family member or a friend is selected does not mean that he or she will perform less well than a professional fiduciary. In some cases, family and friends may be better where the assets are relatively low in value and the need for personal relationships is great.

Typically, you will act as the Trustee of your own revocable living trust. This is primarily the case where the purpose of your trust is to plan for possible future incapacity or to avoid probate at the time of your death. For most purposes, you will want to remain in control for as long as possible, and serving as Trustee of your own trust is one way to accomplish this.

In fact, aside from re-titling your assets in the name of your trust, generally once your revocable living trust is established, you should see no practical change in the way you live your life. Yes, you are the Trustee, but on a day-to-day basis, you will continue going about your life without any substantive change to how you handle the management of your assets.

If a client is suffering from a condition that necessitates the help of another person to manage their assets, it may be worth considering bringing on a Co-Trustee or being replaced as the Trustee for the purpose of assisting the client with his financial affairs. In this particular case, the Trustor generally retains ultimate control and has the power to remove the Trustee, if necessary.

Generally speaking a deceased person's unpaid expenses, including income taxes, are to be paid out of his or her probate estate. However, estate, gift, and generation skipping transfer taxes are doled out pro rata among the beneficiaries / heirs of the decedent, e.g., beneficiary of life insurance policies, IRAs, or other retirement accounts, and the surviving joint tenants of joint tenancy assets. That being said, it is fairly common for those with Wills and Revocable Living Trusts to specify that the expenses and taxes are to be paid out of the residue of the estate or trust estate. 

Although many trusts specify that expenses and taxes are to be paid out of the residue of the trust estate, one should consider whether that is a fair burden on the residuary beneficiary(ies) of the trust. If a large portion of your assets passes outside of your trust, for example, by way of a large retirement account, it may not be fair for the residuary beneficiary(ies) of your trust to be responsible for the taxes related to that retirement account. On the other hand, if the beneficiary of the retirement account and the residuary beneficiary(ies) of your trust are the same people, it would not matter since the same people are ultimately responsible for the taxes. 

Clients often use revocable living trusts to accomplish tax planning objectives. However, many of these objectives involve technical requirements that, if not complied with, defeat the Trustors intentions. Many times, the technical requirements are not met because of a clerical oversight or because the trust is not drafted in a way that carries out the Trustors' wishes. 

Luckily, the laws in California provide some relief in the form of statutory savings provisions that are intended to help Trustors preserve marital and charitable deductions. These provisions can be found in California Probate Code Sections 21500 - 21541.