October 19, 2016

What Every Trustee Needs to Know About The Trustee Job

What to do if... you've been named a trustee, beneficiaries are asking lots of questions, or to know if you want the job
Dawn Doebler, MBA, CPA, CFP®, CDFA®, Senior Wealth Advisor

I’ve just been named co-trustee on my family’s trust and I don’t know anything about it. What should I do? 

Our first bit of advice is to pause before you take any official actions as trustee.  It’s important that you have all of the information about the trust provisions before making decisions in the capacity of trustee.  Whether the trust is newly created as the result of someone’s death, or an existing family trust that may have been established a generation or two ago, each trust has specific goals based on the intentions of the person gifting the money.  Many times that person had a particular use in mind—perhaps to support a relative with special needs, pay for higher education, or provide supplemental income to a grantee who chooses a lower-paying career, like a social worker or teacher.  The best way to become aware of the trust’s goals is to review the Trust Agreement or the Will provisions in detail. 

Next, you should meet with all the advisors involved with the trust.  That may include another trustee who could be a family member or a professional trustee such as a bank or trust company.  If the trust is already existing, there likely is an attorney who drafted the trust agreement with the original grantor and may be acting in an administrative capacity.  There may also be a CPA who prepares the trust tax return.  Finally, an investment advisor may be providing professional investment management for the trust assets.  Meeting with each of these advisors can give you solid history on how a trust has operated in the past.  They are a valuable source of  any behind-the-scenes information that you should know like challenges from family members or beneficiaries. If this is a new trust, establish a baseline by asking these advisors to outline their roles and responsibilities. 

Lastly, you may consider hiring legal counsel of your own.  An attorney hired to advise on your behalf can be particularly helpful if the beneficiaries are family members who may be resentful of your new role.  We see this occur often when aged parents select one of their children to become trustee over what may be substantial trust assets.  This can create a challenging dynamic among siblings, especially if one of them needs the assets to support their own financial well-being. 

Hiring the correct attorney can be more challenging if grantors reside in another state where trust administration rules differ from your state of residence.  In this case, look to hire an attorney who either practices in both states or who understands the laws of the state in which the trust was created. 

I was just made trustee on a large family trust and my close cousin asked me some pointed questions. Do I have to answer her questions?

When a trust is first established or when there is a change in trustees, it’s common for beneficiaries to use the transition period as an opportunity to gain more information. Naturally, they are interested in what potential benefit may come to them.  Answering these questions can be particularly risky if you are also a beneficiary of the trust, so we suggest exercising caution before disclosing information.  One consideration is whether the trust agreement has any limitations on the level of detail that can be provided to beneficiaries.  There may be reasons that the original grantor does not want to disclose details and may have included those instructions in trust documents. 

You might also consider whether providing the requested facts to your cousin would benefit her over the other beneficiaries of the trust.  If you determine that the information can be disclosed, it’s a good idea to provide the information equally to all beneficiaries at the same time.

Because you are managing money for the benefit of all the beneficiaries, the law requires a very high standard of record keeping.  You want to be sure that any information provided can be supported  if additional questions arise now or at some point in the future.  Keep in mind that even if you act honestly and with the best of intentions, if you cannot accurately account for every dollar spent or action taken in the trust, you are potentially liable.

I’m not sure I want to this Trustee job.  It seems like so much work and I’m concerned about my liability if things go wrong.  

Being a trustee of a family trust can be challenging.  You not only have to handle the money management requirements but also must handle the people element by responding to the requests of beneficiaries, some who may be your close relatives.  In the case of larger family trusts, the list of beneficiaries can be long and may include individuals from 2-3 generations, each with their own set of financial circumstances.  We remind our clients that agreeing to serve as trustee brings with it some very important responsibilities.  Trustees must act in the best interests of the beneficiaries of the trust and cannot use their knowledge as trustee to advance their own benefits from the trust. 

Sometimes the best decision is not to have a family member acting as trustee. Managing the personalities of the beneficiaries can be daunting, especially if trustees are in a younger generation.  If you are unwilling to assume the trustee role, or decide not to continue, one option is to hire a professional trustee–a bank or trust company.  This puts into place a completely unrelated and impartial administrator who may be more able to manage demands of several related beneficiaries.  

Many professional trustees charge fees and they also may require a minimum level of assets in the trust.  Despite the higher management costs, this may be a good option for you.  Be sure that the other trustees and, if necessary, the beneficiaries are made aware of the fees for any professional trustee you're considering hiring. Involving everyone in this decision now will ensure no one questions the decision of professional trust management at a later date.


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Dawn Doebler, MBA, CPA, CFP®, CDFA®, Senior Wealth Advisor

Dawn’s experience spans more that 25 years providing wealth management, financial planning and corporate finance solutions for clients. As an MBA, CPA, Certified Financial Planner (CFP®), and a Certified Divorce Financial Analyst (CDFA®), she is uniquely qualified to understand the challenges and financial needs of clients from executives to entrepreneurs, as well as single breadwinner parents. Dawn is a weekly contributor to WTOP radio.