What are the responsibilities of a trustee?
The trustee is the manager of the trust.
Trustees are responsible for following the instructions created by the Trust maker, completing administrative tasks of the trust, delegating to professionals as needed, and managing and distributing assets of the trust for the benefit of the beneficiaries named in the trust document.
While the trustee often hired and outside advisor to manage the investments within the trust, the trustee is still responsible for making sure that the investment advisor is following the investment policy (or create such investment policy) aligned with the trust maker’s intentions (you are going to notice that I repeat this constant need to make sure actions align with the trust makers intentions throughout this article because that’s always what it comes back to).
Most importantly, the trustee has to constantly communicate their actions with the beneficiaries. If the trustee doesn’t over communicate with the beneficiaries then they may hire an attorney to do that for you (and you certainly don’t want the beneficiary to go down that road because it will quickly make your life a nightmare).
Another important legal concept to keep in mind is that the trustee is a fiduciary. This means that the trustee is legally required to act in the best interest of the beneficiaries in accordance with the intentions of the trust maker. Depending on how the trust was written, it can be a delicate balance between following the trust maker's intentions, and also keeping the beneficiaries satisfied that you are doing your job correctly.
In fact, one of the most common issues that trustees face is when a beneficiary feels like the trustee is hiding something from her or her or not fulfilling their fiduciary obligations as trustee of the trust. For example, the beneficiary may want the trustee to pay for something, and the trustee might feel like making that payment or making that distribution doesn’t align with the trust maker’s intentions (like buying a beneficiary a new luxury car or paying for a family vacation that has nothing to do with the beneficiary’s health, education, maintenance or reasonable support).
This could be particularly problematic when a beneficiary is dealing with personal issues. For example, if the beneficiary has a history of making terrible financial decisions, susceptible to being easily influenced by others (like a significant other), or if the beneficiary is struggling with gambling or substance abuse issues.
In these scenarios, the trustee needs to know how to not only communicate the trust maker’s intentions with the beneficiary, but also how to make sure they are documenting their actions to show that the trustee is acting objectively and not in his or her own interest. This is especiallly important if the beneficiary ever does try to get their own attorney involved because you can quickly forward your correspondence and records to quell any suspicions of wrong doing.
For all these reasons, picking the right trustee for your trust is a decision that should not be taken lightly.
The trustee should be an organized, detail-oriented person, and most importantly (as the name suggests) they must be a trustworthy person. If you have any hesitation about someone serving is your trustee because of their ethics, then that should be an immediate no when it comes to serving as trustee.
Although it’s helpful to have a trustee who is financially savvy, that is more of a nice to have rather than a need to have. It is more important that you pick someone who is a good communicator and knows the family well, because if there’s a certain skill or expertise that they are lacking, they can often delegate those responsibilities accordingly.
For example, they can hire an investment advisor to make sure the investments are properly diversified, they can hire an attorney if a certain legal issue arises, and they’re not sure how to handle it, and they can handle a CPA if they’re unsure how to deal with a certain trust tax situation.
If you’ve been selected or chosen to be a successor trustee of a trust, then I highly recommend you have a conversation with the trust maker while they are still living in order to make sure that you are both on the same page as to how the trust will function.
If there’s any ambiguity, it is best to address it now while the trust can still be updated rather than waiting until the trust maker is no longer there to provide clarification or make adjustments to the trust as needed.
If you have additional questions about the responsibilities of a trustee, or if you’d like me to review or create a trust for your family, then click the link below to schedule a call with me.
