Oran Hall The responsibilities of a trustee
A trustee, through a trust, holds legal title of an asset or group of assets for another person, called the grantor, for the benefit of others, called the beneficiaries. The trustee can be a person or entity but does not own the assets.
A trust can be in existence for a very long time and may require a high degree of skill and experience to administer depending on the nature and the range of the assets it holds, the instructions of the grantor, the needs of the beneficiaries and the economic environment.
It can be challenging to manage a trust whose beneficiaries include children or spouses who suffer from disabilities, mental incapacity,so or some other condition which may make it unwise to hand funds directly to them. Additionally, contentious family members can also add to the headache of administering the trust, which can be very time-consuming.
Further, because the trust is a binding legal contract, the trustee is legally bound to follow the instructions of the grantor as laid out in the trust document and is thus under obligation to manage the trust in a prudent and reasonable way. Failure to do so could put the trustee at risk of being sued by beneficiaries who believe that the trustee is not acting reasonably.
Very often, a decision has to be made between choosing an individual, such as a family member or a trusted friend, or an attorney-at-law, or an entity, such as a bank, trust company, or firm of attorneys-at-law. Expertise, cost, and the availability of time tend to weigh heavily in making this decision.
Family members or friends are attractive as trustees because they do not tend to charge and tend to have a personal interest in the success of the trust. This should be weighed against the likely lack of expertise and experience in dealing with some matters – investments, for example. People die, often many years before the trust ceases to exist, the best solution here being to appoint more than one trustee. Individuals could also find it challenging to effectively carry out their function in the midst of family squabbles.
An independent attorney-at-law is more removed from such squabbles and may have more expertise and experience, but even attorneys-at-law are mortal.
An entity that offers trust services as a core function is appealing by virtue of its knowledge, expertise, and skill, its longevity, and its distance from feuding beneficiaries and wannabe beneficiaries is attractive, but cost may be a big issue.
A trustee has a duty-of-care obligation, which requires taking reasonable and proper care to manage the trust assets in much the same way as one would manage one’s own assets. Additionally, a trustee has to act impartially, taking care to ensure that no beneficiary is put at a disadvantage.
As a fiduciary, a trustee ensures that the trust is administered in full accordance with the stated wishes of the donor and must, therefore, be fully aware of the terms of the arrangement.
The trustee is responsible for ensuring the safety of the assets of the trust, taking care that they are not commingled with other assets. There should be proper accounting of the portfolio of assets.
As administrator of the trust, the trustee is obligated to keep accurate records of the affairs of the trust, file all statutory returns, arrange for audits where necessary, keep the beneficiaries current on the affairs of the trust and pay the expenses of the trust.
Very importantly, the trustee must know who the beneficiaries are and what their rights are, and the beneficiaries themselves should understand very clearly the grantor’s wishes for the trust.
In many cases, investing the assets of a trust is a core function of the trustee.
The investment strategies must align with the needs of the beneficiaries, so how much income is needed when and for whom has to be central to investing decisions, and the needs of capital beneficiaries have to be borne in mind. In some cases, as well, it may be necessary to grow assets for a family’s future generations.
To be able to make prudent financial decisions that align with the wishes of the grantor, the trustee should be aware of the state of the financial markets and be alert to changes therein.
A trustee who is deficient in such competencies is best advised to engage the services of competent and reputable financial advisers or fund managers.
When a trust terminates, the trustee is responsible for delivering the trust assets to those entitled to receive them: the beneficiaries, the settlor, the settlor’s heirs, or any other party specified in the trust agreement.
A trust is a good estate planning tool, but its effectiveness rests heavily on how well it is set up and how effectively the responsibilities of the trustee are executed.
Oran A. Hall, author of Understanding Investments and principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel.finviser.jm@gmail.com