The 'Not-So-Trivial' Responsibilities of a Trustee

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Have you been asked to serve as the trustee of a trust for a family member or friend? Or, are you in the process of determining who would be the best person to act as your trustee? Either way, it’s an important decision that shouldn’t be taken lightly. Here are the facts you should know.

Characteristics of Good Trustees

The Business Dictionary says this about a trustee:  “The most important aspect of a trustee's duties is its fiduciary character. A trustee is legally and morally bound to manage the trust property in a responsible and productive manner and is under an absolute obligation to act solely for the benefit of the trust's beneficiaries.” 

Simply put, a trustee must handle the assets of a trust in the best interest of its beneficiaries.

When looking for a person to act as trustee, you should consider that person’s integrity as well as patience.  A trustee must be detail-oriented, which requires organizational and record-keeping skills.  In addition, the trustee must be totally objective when working with the beneficiaries in order to properly reflect the directives within the trust.  Plus, all of this may require significant time on the part of the trustee. The ideal trustee will reflect these characteristics.

If you’ve been asked to serve as trustee, make sure you can live up to the requirements. Serving as trustee is a legal obligation to act in accordance with the terms of the trust, so make sure you’re able to commit. If you can’t, you should consider declining the appointment.

Trustee Responsibilities

Even for people who possess the desired characteristics, serving as trustee isn’t an easy undertaking. The duties include, but aren’t limited to:

  • Serving as a fiduciary with respect to the beneficiaries of the trust,
  • Receiving, managing, protecting, and investing the trust property appropriately,
  • Accounting for all receipts and disbursements,
  • Exercising discretion over the assets,
  • Avoiding inappropriate use of trust property, i.e. using for personal benefit,
  • Reporting accounts to beneficiaries, and
  • Ultimately disbursing the entirety of trust property according to the trust provisions and terminating the trust.

Know that you don’t have to do everything yourself. If you don’t feel you can personally take on all the responsibilities, you can seek professional help—particularly with regard to investing and accounting. You may even consider consulting an attorney from time to time.

A trustee must be familiar with the different types of beneficiaries. “Income beneficiaries” are entitled to receive income produced within the trust, but not principal. “Qualified beneficiaries” are entitled to income and principal of the trust. The “remainderman” is the ultimate receiver of the trust assets when the trust is dissolved. Also keep in mind: a beneficiary isn’t always an individual. It may be a charitable organization.

As trustee, it’s imperative that you read every word of the trust document and fully understand the wishes of the grantor (creator of the trust) and the parameters outlined. You cannot deviate from the terms of the trust, especially when making distributions to beneficiaries. If you don’t perform your duties as described in the trust, you could be held personally liable.

Potential Personal Liability

Here’s something to think about. As a trustee, your liability isn’t limited to the assets within the trust. If you are deemed negligent, you are personally liable, even if you didn’t personally benefit from this negligence.

Failure to communicate with beneficiaries or provide them with statements of trust accounts or transactions can also cause serious problems. As trustee, you must deliver a written statement of accounts annually to each income beneficiary and, if indicated in the trust document, the remainderman.

If you aren’t required to share the accounting information with the remainderman during the trust term, he/she can request statements at the time of trust termination—going all the way back to the date of inception of the trust. For this reason, it is important to keep good records and retain them for reference in case there’s a potential dispute down the road.

Summary

While it may seem like a daunting task, being asked to serve as trustee of someone’s trust is truly an honor. Should you decide to take on this role, it’s very important to understand the responsibilities as well as the potential personal liability involved. It is also advisable to have a good team of professionals for assistance when needed.

Kathy Hower is director of financial planning and senior wealth advisor at Bedel Financial Consulting Inc. For more information, visit their website or email Kathy

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