It’s time for some education. And I do this out of the good of my heart because so many of you will find yourself in a situation where this advice could be important.
More and more people are using trusts as estate plan tools to ensure that their families and assets are taken care of after they pass away. Whether it be taking care of children, providing for charities, or managing real estate, the people who create the trusts have specific wishes that they expect be followed. And they expect the trustee to whom they entrust such responsibility to act according to their wishes. But being a trustee can also be a thankless job, one which puts the trustee between the cross-hairs for litigation.
So why am I bringing this up to all of you? It is my estimation that the vast majority of you will at some time be asked to act as a trustee. You are trusted advisors and close confidantes and you will likely be asked to be a trustee. But what does that entail? Well, follow the terms of the trust. Sounds simple, right? It should be but it isn’t and the courts are filling to over-capacity with cases against trustees pertaining to their actions.
So here are a few rules to take heed of, that might help make your trustee-ship an uneventful one. This is not an exclusive list, but these are some highlights…
1) Read the trust. Rob, are you kidding? Well, you might be surprised. Just because there are three children, it doesn’t necessarily mean that the trust’s assets were to be divided in thirds. Not all trusts are the same, so merely reading one doesn’t mean you have read them all. Better yet, read the trust with an attorney familiar with administering a trust.
2) Keep track of your time. This might sound odd, but being a trustee is a second job, and one for which you might be entitled to compensation. Re-read the trust and make sure you are familiar with the compensation provision. Some trusts are specific as to how much the trustee is to be paid, for example a percentage of the value of the assets. But some trusts, especially those drafted more than a few years ago, may still contain a compensation clause that instructs the trustee to receive “reasonable” compensation. What is reasonable? Ask 10 people and you will get 10 answers and lots of fighting. So the best suggestion is to keep track of your hours spent acting as trustee. At least in the event there is a dispute as to the trustee’s compensation, you can demonstrate the actual time worked.
3) Provide annual accountings. If need be, hire an accountant, but be sure to provide written accountings to the beneficiaries every year. What is a “written accounting?” We can talk about that later, but basically it should inform as to the income and expenses of the trust. Why is this important? First, it is required by statute. Second, once the accounting is served on the beneficiaries, the statute of limitations begins to run on claims that can be made challenging the accounting. If you don’t serve the accounting, the statute does not begin to run and the trustee can be on the hook for a lengthy period of time.
4) Do an Inventory. This one may sound strange, but when you become trustee, make sure that the assets of the trust are actually in the trust. Funny, huh? Well, you might be surprised, but it is not uncommon for people to set up trusts and not actually transfer assets into the trust, or “fund the trust.” Especially with a lot of do-it-yourself websites and computer programs, people mistakenly believe that just having a trust is sufficient. It certainly helps, but before the trustee can administer the trust, he or she needs to have assets to administer. Otherwise the trust will not function appropriately. So make sure that the assets that are supposed to be in the trust actually are. If not, it is not the end of the world, but the trustee has to get to work immediately.
5) Take emotion out of the equation. Not only might you be asked to be trustee for clients, but also for brothers and sisters, taking care of your nieces, nephews, cousins, or other family members. Don’t play favorites and always act fairly. As trustee you wear a different hat from the one you wear at Passover or Christmas. You wear a hat that not only carries with it a huge responsibility, but also a lot of exposure. Your actions will be scrutinized and critiqued and challenged by those beneficiaries who feel they were treated unfairly and the challenged could subject you to personal liability. Your best bet for smooth sailing is to be mindful of the different hats you have to wear, and wear your unbiased hat when dealing with trust matters. When in doubt, ask your attorney.
This is only a small guideline. Being a trustee is not a fun job, it is not always an appreciated job, but it certainly is a job with a lot of responsibility and one which you have been asked to do by someone who trusts you and has faith in you. It is definitely a job you CAN do, but be mindful of your duties and ask for advice when in doubt. Because, my friends, these are matters that are being litigated… trusts have assets, collection on a judgment is usually not an issue, and dysfunctional families do not get better when the parents pass away.
P.S. ROB! Why so serious?!?! 🙂 Hey, I have to show you I have some intellect, right? Not just a pretty face and witty sense of humor.