So, You’re A Trustee…Now What Do You Do? (And Who Can You Call For Help?)

You may think you know what it means – and what it takes – to be a Trustee, but what does the role really entail? When a family member or friend appoints you as their Trustee, they are doing more than honoring you with a title. They expect you as their selected Trustee to know (1) the scope of your (expansive) powers and responsibilities and (2) the various fiduciary duties that regulate and control Trustee actions.

The role of Trustee is multifaceted. A Trustee acts as an administrative professional, tax preparer, asset manager, trusted family advisor, banker, and sometimes family referee – all at once. Even for “simple” trusts, administration from funding to final distribution is no small feat. The Trustee will be tasked with collecting assets, creating accounts, making investments, purchasing, selling and safeguarding assets (or hiring other investment professionals to do so), filing required income tax returns, making distributions (often requiring use of discretion in unclear circumstances), and navigating relationships with and between the beneficiaries.

To assist Trustees with their understanding of their multiple tasks, state law provides guidance on a Trustee’s general and fiduciary duties, including:

1. The duty of care and duty to act in good faith. Trustees must act openly and honestly in their trust dealings and exercise reasonable care and skill in managing the trust.
2. The duties of impartiality and loyalty to beneficiaries. Trustees are expected to act impartially by treating beneficiaries fairly and in the best interests of the beneficiaries – not for their own private advantage. Trustees must consider both the needs of current beneficiaries and the interest in preserving assets for future beneficiaries.
3. The duty to report, inform, and keep adequate records. While this duty may seem the simplest, legal pitfalls or onerous litigation can await Trustees who overlook this aspect of their obligations.

And of course, the most overarching duty of the Trustee is to carry out the terms of the governing trust document that legally binds the Trustee. The trust document sets out who the beneficiaries are and under what circumstances distributions can be made. The Trustee must understand these specifics and should manage the trust property with these considerations in mind.

As one might expect, these multifaceted responsibilities can lead to any number of challenges and conflicts. When a Trustee is also a beneficiary, or when there are multiple present and future trust beneficiaries, questions often arise about the Trustee’s compliance with the duties of impartiality and loyalty. Sometimes the trust agreement itself creates conflict – whether through failure to account for certain contingencies or inartful drafting.

A Trustee often may need to call upon their own trusted advisor for help. Our Trusts and Estates team has a wealth of knowledge and a long history of advising Trustees by providing practical solutions, guidance, and tips for navigating the Trustee’s many administrative and legal obligations. We can help our Trustee clients:

• Implement systems to understand beneficiary needs and circumstances;
• Understand the purpose of the trust and when distributions can be made;
• Understand accounting requirements, including how best to prepare required accounts and share them with appropriate recipients;
• Create a formal process for making routine distributions and evaluating beneficiary requests for distributions;
• Communicate effectively with beneficiaries;
• Request, gather, and interpret financial information pertinent to the trust’s management;
• Develop best practices and policies for the investment of trust property, taking into account the purposes of the trust;
• Ensure that trust property is adequately insured or protected;
• Calculate trustee compensation (where allowed);
• Understand tax considerations and filings and recordkeeping requirements;
• Identify potential conflicts among interested parties; and
• Explore strategies to alleviate potential fiduciary liability.

If conflict arises, our Trusts and Estates Litigation team can shepherd our Trustee clients through the challenges of potential and actual litigation. They often work closely with our Trusts and Estates attorneys to understand and manage the substantive issues. This teamwork creates a very effective and efficient approach towards managing challenging trust issues when they arise.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.