This summer has brought an increase in contested probate matters – that is, family and/or friends not getting along, or people taking advantage of others based on their position of power in someone’s estate planning documents. In many of the cases, it was actual or alleged breach of duties by a person appointed as Trustee.
I will not get into the gory details of the cases we’ve had this summer (several of which are still pending), but I do think they emphasize one thing – we all should know who/what a Trustee is, what they are required to do, and what they can be liable for. Of course, I am not going to be able to go into too much detail in this post . . . well, I could, but it would put you to sleep, if you are not asleep already 😉
In short, a Trustee owns and manages property for the benefit of someone else. Most commonly, this is someone named to administer and distribute your revocable living trust during a period of your incapacity or after you pass away. It is not like managing your own finances. A Trustee has the power and the obligation to manage someone else’s (your) assets for the benefit of the beneficiaries named in the trust. It is not a role to take lightly.
As far as the powers the Trustee has, basically they can do anything you can do. Sell, buy, transfer, get loans, make loans, and, if the your trust specifically gives them the power, they can handle your business, specially regulated assets (e.g. firearms), and many other things.
But, as they say, with great power, comes great responsibility. The Trustee has several duties and obligations, all of which fall under the general heading of “fiduciary duties” – that is, duties that are owed to others based on the Trustee’s relation to them as Trustee. A short and non-exhaustive list of Trustee duties are:
- Marshalling assets: gathering all of your assets together
- Acquire a tax ID number, if the trust does not already have one
- Inventory and appraise (formally or informally) trust asset
- Send legally required notices to trust beneficiaries within a certain timeframe
- Keep the trust beneficiaries informed of trust assets
- Invest trust assets as a “prudent person” would
- Keep “accountings” (e.g. values, income and expenses) of trust assets and provide reports to beneficiaries no less than annually
- Prepare and file trust tax returns (or, preferably, work with a qualified CPA to prepare and file them)
- Make distributions as required in the Trustee agreement
- When the trust is fully administered, close the trust
As you can see, there is a lot for a Trustee to do and to do correctly. The top two recommendations I make to Trustees are: (1) keep meticulous records on everything you do and why you did it, and (2) enlist the assistance of professionals, such as an Attorney, Financial Advisor, and CPA, to make sure you are properly administering the trust and the assets owned by it.
When choosing a Trustee, you should choose someone you trust and who is either capable of handling the above items on his/her own, or is willing to work with professionals who can guide him/her through the process. Given what is involved, it is not uncommon for families to choose a professional Trustee, such as a bank or trust company.
In closing, I would recommend that you bookmark this post. Or, better yet, keep it yourself and share it to anyone who is named as a Trustee in your plan or who may be named in someone else’s plan (friend or family member). It will be a good starting point if you (or they) are called upon to act as Trustee.
And remember, if you ever have a questions, please contact me.