Is it really an honor to be a trustee? When a friend or family member requests that you serve as trustee for them, you should never answer “yes” immediately. You will need to know specifically what your duties, responsibilities and potential liability may be as well as the time commitment being asked of you.
There are many types of trusts. Though it may be flattering and an honor to be asked, since you presumably are considered to be responsible, trustworthy and mature enough to handle the job, you must understand the terms of the trust, its length and specifically what judgment you must exercise in your capacity as the fiduciary. You will then have to exercise this responsibility to carry out the terms of the Trust as it is written. This may include the requirement to file a tax return, make discretionary distributions of income or principal among various family members, invest the funds in the Trust under the required standards set by the State and the Trust, and also balance the requirements being assigned to you in terms of carrying out your fiduciary duties.
You may be asked to make payments to or for the benefit of minor children, grandchildren or other beneficiaries. In some situations, you will have the discretion to make distributions unequally among these beneficiaries and will have to choose who shall receive or not receive funds from time to time. You must understand all family relations, get to know the beneficiaries and their needs, wants and concerns. The family may not be in agreement in many cases and may challenge your decisions, and you may need to seek legal assistance to make sure you are carrying out the terms of the trust. When a beneficiary does not like a decision you made, they may challenge your decision by filing a petition in court, possibly seeking your removal as trustee or challenging your fees.
Often investments are challenged if they lose money even in a down market. If the “Monday Morning Quarterback” beneficiary decides after the fact that the trustee should have known that the market was not going to increase, they may allege that the asset should have been switched to less risky/more conservative type of investments. If the market is on the upswing, the beneficiary may also challenge the trustee, stating that the assets did not compare favorably with a benchmark standard such as the S&P 500, Dow Jones Index, etc. Very often, it is better to delegate the task of investment advisor to a professional so that the beneficiary will be less apt to have any legitimate case against the Trustee for underperforming assets.
If you are named as the Trustee, you should read the entire document and have the attorney who drafted it explain it to you prior to accepting your duties as Trustee. In the event that there is any question as to the terms of the Trust, then possibly, you should seek a letter of opinion from the drafter of the document to explain and interpret the legal language within the Trust in case that drafter is not around when the Trust is administered. You may also wish to obtain a letter of instructions from the creator of the Trust so that he or she may identify exactly what was intended within the investment, distribution or administrative provisions of the Trust. Also, you should be certain that you have the right to resign from the Trust at any time without having to petition a court, which may be costly to pursue and possibly without the benefit of being reimbursed from the Trust.
By: Hyman G. Darling, Esq.
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