At Clarity Legal Group, our clients often choose to incorporate one or more trusts into their estate plan. Although each trust agreement is uniquely tailored to the needs of the Settlor (the trust creator), one thing all trusts have in common is the need to appoint a Trustee to oversee the administration of the trust. This makes the role of Trustee one of the central responsibilities in the planning. Most of my clients use family members or close friends to serve in the various fiduciary roles which apply in a comprehensive estate plan. I encourage my clients to give some thought to who can best serve in any fiduciary position in the estate plans. It’s not uncommon for people to decide they are best served by naming a professional to undertake the responsibilities of Trustee.
What Does a Trustee Do?
The overall job of a Trustee is to protect and manage the trust assets and to administer and distribute the trust assets according to the rules created by the Settlor and expressed in the Trust Agreement. The Trustee has responsibilities defined in the Trust Agreement and in the applicable statutes and regulations. The day-to-day duties and responsibilities of a Trustee are numerous and varied; however, they typically include things such as:
- Managing and protecting trust assets
- Abiding by the trust terms unless they are impossible, illegal, or unconscionable
- Investing trust funds using the investment standard set forth in the Trust Agreement or applicable statutes. This might be the “Prudent Investor Standard” or something akin to a “reasonable person” standard.
- Hiring and supervising others who are working for the trust, such as a financial advisor or accountant
- Communicating with trust beneficiaries
- Resolving conflicts among beneficiaries
- Making discretionary decisions
- Distributing trust funds to beneficiaries
- Approving or denying distributions if given discretionary authority
- Keeping detailed trust records
- Preparing and paying trust taxes
Benefits of a Professional Trustee
As I mentioned, Settlors often appoint a spouse, family member, or close friend as the Trustee of their trust based solely on the fact that they “trust” that person to have their best interests at heart. My thinking is there can be some real advantages to this approach. For example, one of the circumstances in which someone might serve as Trustee is under a Revocable Living Trust during a period of the Settlor’s incapacity (the Settlor usually serves as his or her own Trustee of this kind of Trust). In this case, the personal relationship of the family member or friend with the Settlor can be a real advantage.
It turns out that the Trustee is not necessary a solitary figure. A Trust Agreement might name a family member to serve as Trustee during the Settlor’s incapacity, but choose another to serve to administer the Trust at their death or in the case of an ongoing trust set up for a spouse or children or grandchildren. It’s also the case that the Settlor might choose one Trustee for management of the investments and the tax and record keeping functions and another to exercise the discretion associated with distributions.
It turns out, for some people, there a lot of circumstances in which a professional or Institutional Trustee is a better choice. In some situations, experience is at a premium, and this can be the most important reason to appoint a professional or institutional Trustee. Successfully administering a trust requires a certain amount of legal, tax and financial knowledge and experience. The Trustee of a trust should ideally be familiar with all the applicable state and federal laws that govern trust administration. In addition, for a trust which is to administered for multiple years a Trustee will need the practical skills necessary to invest or supervise the investment of the assets of the trust. Not only will a professional Trustee typically have considerably more experience than someone close to you, but a professional also brings objectivity to the position.
Don’t forget my point that a family member in these roles is not alone. The Trustee can typically use trust assets to hire professional assistance, retaining a financial advisor to invest the money, consulting a lawyer about administration and law, and retaining a lawyer or accountant to prepare tax returns. Ultimately, a Trustee’s role is about exercising responsibility and maintaining fidelity to the rules or the trust. This can be accomplished by delegation.
I bet as you were reading the preceding paragraph you were thinking something like “all those advisors are going to cost a lot of money”. Indeed they are, and a professional or institutional Trustee is likely to charge fees for their services which are higher than a family member (who might charge nothing). As the lawyer assisting the family, I am sometimes concerned that the individual family member serving as Trustee will — in the interests of saving trust money — not retain the assistance I described above. This may result in missteps, sometimes small and sometimes not. In making this decision, ask yourself what your goal is. Doing things a cheaply as possible? Making things as easy as possible for your family? Making sure you get things right? Maintaining family privacy?
Sometimes my clients don’t want to put family members in the position of making difficult decisions. If your Trustee has the authority to make discretionary disbursements, a professional Trustee is typically more likely to be objective when deciding if a request for a disbursement should be granted because the Trustee does not know the beneficiary on a personal level. This also helps when a conflict arises. A Trustee is often called upon to resolve conflicts among beneficiaries and is always required to try to prevent them from occurring in the first place. When the Trustee knows the beneficiaries on a personal level it can be much more difficult to avoid, or help resolve, conflicts.
Liability is yet another consideration when choosing a Trustee for your trust. Under certain circumstances, a Trustee can be held liable for the loss of assets or other negative outcomes during the administration of the trust. Not only would you not want someone close to you to be in such a position, but a professional Trustee is less likely to be in that position because he/she has the experience and the knowledge to avoid those circumstances.
Finally, you need to consider whether your spouse, friend, or family member really wants to serve as your Trustee. If the trust you create is a testamentary trust it means you will have recently passed away when the trust activates. A spouse, family member, or friend may not want to act as your Trustee while grieving your recent death. With a professional Trustee, you do not have to worry about whether he/she is willing and able to serve.
Contact a Raleigh, Durham, Cary, Chapel Hill area Trust Administration Attorney
If you have additional questions or concerns regarding appointing a professional Trustee, please contact a ,trust administration attorney at Clarity Legal Group by calling us at 919-484-0012 or contact us online.
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