In the last blog post, I talked about different fiduciary roles (executor, trustee and guardian) but being a trustee typically has long-term implications. Naming someone as trustee, whether it’s for your living trust or for a testamentary trust in your Will, is quite possibly one of the most difficult decisions you’ll ever make. This trust could be revocable or irrevocable, depending on the purpose of the trust and could exist for many years. The trustee is involved in just about every aspect of the administration of a trust; and although it is considered a great honor, it can also be a great responsibility.
Most people choose someone close to them to serve as trustee, such as a child, sibling or best friend. Choosing someone who knows you and your family to serve in this role can be beneficial in many ways, but if that person doesn’t have a financial or legal background the responsibilities can be overwhelming. It is important that the person you nominate as trustee knows not only what is expected of trustees in general, but also knows what you expect of them as a trustee. Here are some tips and discussion points for you to go over with the trustees you have nominated.
- Make sure you, as trustee, read and understand the entire trust document. If you don’t have a legal background, it is okay (preferable, in fact) to ask for help from an attorney.
- Always remember that the beneficiaries of the trust are your first priority and responsibility. Once you become a trustee you have what is called a “fiduciary duty” to always act in their best interests, not yours.
- Make sure that the trust has its own separate checking account. If the trust is a revocable, living trust this account might have been the Grantor’s during his or her lifetime. You as the successor trustee will likely be the person who takes over that account after the death of the grantor. If it was an irrevocable trust or testamentary trust, even if it was only funded with real estate, you as the trustee must now open a separate checking account with its own tax identification number. Under no circumstances should a trustee mingle his or her personal finances with trust finances.
- Maintain regular contact with the beneficiaries; not just to provide them with regular accountings of trust activity or investments, but also so you yourself can remain aware of the lifestyle, needs, and feelings of all the beneficiaries. This is especially helpful if the trust contains discretionary or age provisions for the trustee to follow.
- Be sure you have a support team that will benefit the trust and the beneficiaries. Get investment advice from a financial professional; have a trusted attorney help with any legal questions you might have; hire a mediator to help if there are irreconcilable differences amongst the beneficiaries. The goal here is not to spend the trust funds frivolously, but to protect and preserve trust assets as the grantors would have wished for their beneficiaries.