Trustees hold significant responsibility.
Although their title is technically derived from the entities they help manage, trustees must also be trustworthy.
That is the foundational requirement.
Those who include a trust in their estate planning have done so to fulfill specific goals.
Examples include simplifying asset distribution, protecting assets from poor decisions by heirs, or protecting government eligibility for heirs with special needs.
Although the person making the trust often serves as a trustee, this individual also designates a successor trustee and sometimes a co-trustee.
According to a recent Forbes article titled “How To Be An Effective Trustee,” there are some things trustees can and should do to set themselves up for success.
What are these?
Make a team.
Managing a trust requires a variety of knowledge and skills.
Having the support of an investment advisor, estate planning attorney, and tax accountant who understands trust taxation will help trustees fulfill their duties.
Meeting regularly with these professionals will help trust management to remain on track.
Understand the key trust terms.
Like most professional fields, trusts have their own jargon.
If you do not understand what is being said in the trust document, ask an experienced estate planning attorney to explain it to you.
Common terms trustees will need to understand include “distribution standards,” “special provisions for investing,” “provisions the trustee should act upon,” and “whether the age of the beneficiary will trigger distributions or other actions.”
Work productively with beneficiaries.
Having a poor working relationship with beneficiaries can be a nightmare for trustees.
In fact, another name for such beneficiaries is “plaintiff”!
Beneficiaries often have opinions on investment strategies, distribution amounts, and other trust management matters.
Although disagreements are likely to exist, trustees can reduce conflict through communication, clear distributions, education, transparency, and providing required information.
Documentation is Crucial.
Similarly to the phrase “pictures or it did not happen,” failing to document actions taken can look like incompetence.
Although we are all imperfect and it is possible for trustees to make mistakes, documenting actions and reasons for decisions will help to demonstrate competence and trustworthiness.
What specifically should be documented?
Trustees should document distribution decisions, decisions to hire agents or experts, decisions regarding setting investment policy, initiation or termination of investments, firing or hiring investment managers or funds, verbal communication with beneficiaries, and principal and income allocations.
If you have been asked to serve as a trustee and have serious doubts about being able to work within these best practices, it may be best to graciously decline the responsibility.
Reference: Forbes (May 31, 2022) “How To Be An Effective Trustee”