Retirement plans use a trustee, who has certain duties and responsibility on behalf of the plan, its investments, and its participants. Sometimes the trust document is separate from the plan document, and sometimes the two are incorporated into a single document.
Large plans often use an independent trust company, but small plans almost universally name the owner or a key officer as trustee of the plan. This is especially true for a family business. Once the documents are signed and the administration is set up, most people conclude that everything is in place. However, there can be a significant risk looming, namely the risk of the death of the personal trustee. If the organization is large enough, the board of directors can name a successor trustee. However, what happens in the event of a small company where the owner is virtually everything – owner, plan administrator, plan trustee, and participant? And what happens if the business is a sole proprietorship and there is no board to take action after the owner’s death? This “perfect storm” does not happen very often, but it can. The beneficiary has a tough time getting the money from the plan because there is no one left who can authorize the custodian of the investments to pay them out on behalf of the plan. And there is no board (or even owner) to appoint the spouse as the successor trustee. A court can, but that takes time and money.
The better solution is to name co-trustees in the plan and trust documents, right from the beginning. That way if one is no longer able to address critical issues, the other one can. This seems like a small issue, but it can save plans a lot of grief under the right circumstances. If your plan has only one trustee, you should consider naming a co-trustee now. Consult the plan and trust documents, since they should spell out the procedure for doing so. Or call us, and we will gladly review your situation with you.
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