What Questions Should I Ask Before Agreeing to be a Trustee?

Aug 15

If a family member or close friend asks you to serve as trustee of their trust, your natural instinct may be to say yes on the spot.

After all, you may have already named this person in your own estate planning documents or maybe you intend to ask them to be a trustee, executor, guardian, etc., so it only makes sense to help however you can.

But, agreeing to be a trustee (which is the person who would manage the trust for the benefit of others) is a serious commitment.

Whether you already said yes verbally or not, here are the six things you should ask before formally accepting the role as trustee.

Question 1: Can I read the trust first?

This one seems almost too obvious to put in writing, but in practice I found that many people will agree to be the trustee before actually receiving the document.

A quick yes is understandable in certain family situations - for example, if your parents ask you to be a trustee. Since you owe them everything and wouldn’t exist without them, it would seem impossible to say no to them.

However, if it’s a friend or sibling, then you may be more comfortable asking them an affirmative question like this:

“yes, I’d be honored to - would I be able to review the trust to make sure I understand what my role is?”

Once you’ve received the draft - scan the trust, highlight concerns or questions or important points you want to discuss further with them, and remember that now is the time to talk about this. Not after the fact, because then it’s too late.

Don’t know what to look for when reviewing the trust? Here are the big items every trustee should look out for when deciding whether to be trustee:

Question 2: Am I the only trustee?

Ideally, you would be the only named trustee if something were to happen to the grantor of the trust (the grantor is the creator of the trust). However, some couples feel more comfortable having the role split between two or more people.

For that reason, you want to be absolutely clear whether you’re sharing the role as co-trustee with another person. If you are, things get a lot more complex.

How well do you know the co-trustee? What is the co-trustee’s relation to the beneficiaries (if any)? Are you there to act as a check and balance on them and vice versa, or are they there so you can split up roles and responsibilities to make things easier for each other?

Are you able to act independent of one another, or do you have to act jointly? If you have to act jointly, is that only on certain items / major decisions or for every minor / administrative task as well?.

What is the procedure for acting jointly? Does it have to be in writing? Or can you have verbal agreements?

What if the co-trustee does something bad? Are you on the hook for that?

As you can see, when there’s a co-trustee involved, you may need to be hyper vigilant. Now, if the co-trustee is your sibling or your spouse, then you may or may not feel more comfortable about it, but if the co-trustee is another friend, acquaintance, or someone you don’t even know, then you should suggest to the person asking you to be trustee to either select you or the other co-trustee as primary successor trustee and then the other person becomes the backup if that primary choice can’t serve for whatever reason.

You generally do not want to be a co-trustee with a person that you yourself do not trust, because they can make your life a nightmare.

Question 3: Who are the beneficiaries?

Most family trusts are structured with the grantors (creators of the trust) being the trustee and lifetime beneficiaries of the trust. Then, after they die, the successor trustee (you) step in to manage the trust for their kids.

For that reason, you usually do not have to worry about serving as trustee during the grantors’ life. But, there may be scenarios when the grantor becomes incapacitated that you will need to step in, and you’ll want to know when and how that works.

For example, do you become successor trustee as soon as one spouse becomes incapacitated (so you serve as co-trustee with the non-incapacitated spouse-trustee) or do you only step in when both grantors become incapacitated and/or die?

In other words, at what point are you expected to have your trustee role activated?

It’s important to understand the activation or the triggering event, because after that point you now have a moral obligation to your friend or family member to accept the role formally and start getting things organized to make sure that their instructions and wishes are followed (and to protect the property for the benefit of the grantor and their kids or other beneficiaries).

But you shouldn’t assume the grantor's kids are the only beneficiaries (or equal beneficiaries).

Sometimes (like in a Massachusetts credit shelter trust scenario) there may be concurrent beneficiaries. For example, the surviving spouse is the primary beneficiary, but it may allow you to make distributions to or for the benefit of their kids in certain situations.

Even if there are not multiple concurrent beneficiaries, you’ll want to know who the remainder or contingent beneficiaries are because they may be closely watching their “inheritance” be spent on someone else (the current beneficiary) and start questioning your accounting practices.

You may also be obligated to provide notice or some form of communication to the remainder beneficiaries - it’s usually a best practice to keep them in the loop when feasible, even if the trust document doesn’t require it.

Failure to communicate with all the beneficiaries can quickly erode trust.

You should also be aware of the family dynamics between the beneficiaries. For example, if you are the trustee and the beneficiaries are siblings who absolutely hate each other, then you are stuck as the quasi-mediator/punching bag if there are any hiccups with respect to the trust.

In that situation, you need to be diligent in your communication with both beneficiaries, and make sure everything is in writing in case one of them ever tries to come back to you and say that you treated him or her unfairly, or mismanaged trust assets.

Don’t give them any excuse to come after you.

However, if the siblings get along well, then that’s great because that’s one less thing you have to worry about.

Then it’s a good idea to figure out where the beneficiaries live, what their ages are, and whether any of them have behavioral or mental concerns that you should be aware of.

For example, a glaringly obvious one, is whether any of the beneficiaries have a substance-abuse or gambling problem. We’ll get into how a trust should be drafted around that, but that is something that should certainly be a red flag for you.

You should also be aware if any of the beneficiaries are disabled or mentally impaired, as that will also increase the burden on you as trustee.

Geography is less of a concern now thanks to technology. However, I’ve found that when beneficiaries are further away, it could add a lack of trust or create other concerns, especially if real estate is a major part of the trust and that beneficiary can’t physically go out and make sure that you’re doing everything correctly

In such situations, out of state beneficiaries may harass you with phone calls, emails, texts, whatever, just because they could be paranoid that you aren’t handling the physical real estate or other tangible property correctly.

Question 4: How long will the Trust last last?

For a standard joint revocable trust, the trusts are usually set up for outright distributions to the children equally once they reach a certain age. So, for example, if the distribution age is 25, and all of the beneficiaries are over age 25, then it should be a more straightforward situation. All you need to do is inventory the assets, present the summary or spreadsheet to the beneficiaries, get permission to distribute after all debts/taxes have been paid, and then distribute accordingly.

In other words, in an ideal standard situation, you are just handing the money over to the kids and acting as a mere conduit.

However, as alluded to in the prior section on beneficiaries, if the beneficiaries are minors for example or under age 18 and the distribution age say 25, 30, 35, whatever it may be, you now are expected to manage that money for that minors or young adults benefit. This could mean their daily living expenses, but you may also be expected to invest the money, and keep them informed of how the assets are performing on a reasonable basis (generally quarterly or annually).

If the trust has little money left in it, but the beneficiary is still under the distribution age specified in the document, then you may be able to terminate the trust prior to the distribution age by spending it on expenses for the beneficiary - for example, education, down payment on a car or a house, money for a wedding, etc.

There is also usually provision the trusts call uneconomical trust, which is another way to terminate the trust early if the amount of money in the trust is so small that it doesn’t make sense from an administrative fee standpoint to continue the trust, in which case you can send the remainder to the beneficiary or for the benefit of the beneficiary assuming there is no other conflicting language in the trust.

Other Major Considerations

Can I be sued?

Anyone can be sued for anything so I’m not talking about frivolous lawsuits here, but you should be aware of what standard you are held to as a trustee of a trust - generally the fiduciary standard.

Being a fiduciary means acting in the best interest of the beneficiary regardless of your own interests. In other words, making sure the beneficiary’s interests are always put first.

However, the Grantor can modify this standard in certain ways or clarify things that you can do as Trustee that may not be allowed under your state’s statutory laws. For example, the Grantor may specifically state that you are not required to diversify certain assets in order to preserve certain sentimental assets (like the family home or vacation home) or business interests (e.g., shares held in a private family company). Whereas, if that language was not in there, then as a fiduciary you may feel the need to sell certain assets and reinvest them in a conservative investment portfolio.

The idea behind the Grantor modifying or superseding statutory laws within the trust is to give you some more breathing room to make sure the Grantor’s intentions are followed without you having to worry about the beneficiaries questioning your actions (or coming after you personally).

It should be noted that although you are acting in the best interest of the beneficiary, you must do so within the constraints set by the Grantor. So if the Grantor gives you discretion to make distribution to (or on behalf of) the beneficiary, and you suspect the beneficiary is financially immature, then you may hold off on certain distributions to protect the assets even though the beneficiary would prefer you just give him or her the money outright. Therefore, being a Trustee is often a balancing act of staying in line with Grantor’s intentions while also making sure the beneficiary is cared for properly.

There is also a standard of care with respect to how/when you can be removed as Trustee, but that standard can be different than the fiduciary’s duty of care. For example, the Grantor may allow the beneficiary to remove you as Trustee for any reason (regardless of whether you actually did anything wrong), or the Grantor could go the other direction and say that you can’t be removed unless you are grossly negligent (which is a step up from general negligence).

If you are unsure what standard of care you are being held to, I can review the trust for you and let you know.

Are there any limits on my trustee powers?

Most trusts have boilerplate language in the trust regarding the trustee powers. For example, they’ll say something along the lines of the trustee is authorized to do all of things specified in the Massachusetts uniform trust code (or whatever jurisdiction the trust has been created or governed under), which usually gives you pretty broad powers in order to do all administrative actions necessary to follow the instructions of the trust accordingly.

But, they are often certain limitations intended to protect the interests of the beneficiaries. For example, under the investment powers of the trust, you may notice language that says whether or not the trustee is obligated diversify investments. You will also see whether or not self-dealing is allowed, which is more typical only when a child beneficiary is also serving as trustee. And you may also see whether you are allowed to distribute money in your absolute discretion for the beneficiary or only if only for certain items (e.g., reasonable health, education, maintenance, or support).

However, if you are the trustee of what I’m going to call a specialty trust, then your powers may be narrowed in very specific ways to make sure the trust isn’t accidently broken.

For example, if you are the trustee of a Medicaid or MassHealth Trust, then there will be specific powers in terms of what you can or cannot do with respect to Grantor-beneficiary or other remainder beneficiaries. This type of trust is usually much more limited in terms of powers to make sure that the trust assets are not countable for MassHealth eligibility purposes or Medicaid purposes.

Then they are irrevocable life insurance trusts, which are also design in a way where certain powers are withheld from the Grantor to make sure they get the most test fearful treatment.

And there’s also trusts called supplemental needs trust or special needs trust, which once again have very specific language on what the trustee can and cannot do in order to make sure the beneficiary qualifies for certain benefits.

So, if you are the trustee of an irrevocable trust, make sure that you speak with their attorney or your own attorney before accepting that role, as such trusts have much more stringent standards and are much easier to mess up accidentally, which could result in severe and significant personal liability.

What assets will be held in the Trust?

Generally, you want to be aware of what the grantors intends to place in the trust either during their lives or at death. That way you understand when and which assets you need to look for and preserve once you step into the role as trustee.

For example, if the trustee plans to transfer the ownership interest in multiple rental properties to the trust, and they were off on you when you become the successor trustee.

On the other hand, if the grantors only have investment accounts or life insurance policies, then those may not be paid/transferrable to the trust until after their death. This usually indicates a much more straightforward situation that is easier for you to administer.

On the extreme end, the client may have transferred privately held business interest to the trust, in which case you would become (as trustee) the effective business owner, depending on the voting shares of that interest held in trust.

Do I get paid to be the Trustee of a trust?

In many scenarios when family members are acting as trustees, they typically do not charge for their services.

However, you should still see if there is language in the trust regarding compensation. Even if you don’t intend on using it, situations may arise that require significant amount of your time and effort to the point where you may be pulled away from your own work, family, or other personal obligations. If that happens, it’s good to know whether you can be compensated for that lost time.

Many time the language will say “reasonable compensation” since actual compensation will depend on who the trustee is and what type of tasks they are doing. For example if you are a CPA/attorney, then you may be able to say that you are a professional trustee, and therefore charge a higher rate as reasonable compensation (anywhere from $125-$500/hour, but usually on the lower end for admin tasks). For non-professional trustees, most people would base compensation closer to an administrative hourly rate (maybe $50-$75/hour in 2022). Paraprofessionals (e.g., work completed by paralegals) would typically be somewhere in between the two.

Please note: rates may vary significantly depending on what state you live in - everything tends to be more expensive in Massachusetts, particularly in the greater Boston area.