There’s an old saying that the two best days in a boat owner’s life are when they buy their boat and when they sell it.
Forbes’ recent article entitled “How To Be An Effective Trustee” says that a similar notion applies to being a trustee – it’s an honor to be named and a considerable relief when it’s over. That’s because being a trustee is difficult.
Remember that a trust is a fiduciary relationship in which one party (the trustor or grantor) gives another party (the trustee) the right to hold title to property or assets for the benefit of a third party (the beneficiary). Trusts are created to provide legal protection for the trustor’s assets, to ensure those assets are distributed according to the trustor’s wishes, and to save time, reduce paperwork and, in some cases, avoid or reduce inheritance or estate taxes.
Being a trustee requires knowledge about a wide range of topics, including:
- The trustee’s fiduciary duties include loyalty, impartiality, the duty of care, protection of trust property, enforcement of claims, and the responsibility to inform and account to beneficiaries, among others (violation of these duties exposes the trustee to liability).
- Understanding the details of the trust, like the specifics of the distribution instructions.
- Investments and the ability to engage and monitor investment managers.
- Administrative matters, such as record keeping and principal and income accounting.
- Estate planning, trusts, and the basics of the estate, gift, and generation-skipping taxes.
- Income tax, including how the federal government and the state tax trusts.
A trustee must also be able to productively communicate and work with the beneficiaries on their financial wellness and distribution needs, which is an area that can be full of conflict.
It’s a daunting list. Talk with an experienced estate planning attorney to discuss your situation in detail.
Reference: Forbes (May 31, 2022) “How To Be An Effective Trustee”