What should you consider before agreeing to be a Trustee?
When you are asked to serve as a trustee of the trust of a family member or friend, you may feel honored and humbled. The request indicates an enormous amount of respect and faith in your judgment. Being a trustee is a role that comes with a great deal of responsibility, and you should be aware of what you are agreeing to do. Below are some of the issues you should consider before you accept the position:
What is in the Trust document:
The first thing you should do is read the trust document. It is your road map for the role and tells you what you should do with the money or other property that will become the principal of the trust and your responsibility to manage. It is important for you to understand the intention of the Settlor and what expectations he/she may have for the assets and how they are to be used regarding the trust beneficiary. A typical standard for trust distributions is for “the health, education, maintenance, and support” of the beneficiary. You will need to know what these words of art mean and how they apply to the situation of the beneficiary. You will also need to know how long your responsibilities will last? Sometimes there is a specific period, e.g., until the youngest child turns 25, or is the term indefinite? It is important to clarify any ambiguous terms, especially regarding these issues:
Closely related to understanding how to manage the trust is understanding the nature of the trust property Does the trust hold stocks or real estate? Are there qualified accounts or regular investment accounts. The Trustee will be required to keep trust assets generating income for distribution. If there is a co-trustee, must they act unanimously or can they act severally? There may also be accounting or tax regulations to observe.
While Trustees must act in a fiduciary capacity, most trusts relieve the trustees from liability unless their conduct is grossly negligent, or they act deliberately to violate their responsibilities. If you are a professional, you may be held to a higher standard than a trustee without your credentials. If you hire professionals to manage the assets, it is important that you vet the professionals you hire and do not direct the duties to friends who may not be qualified.
If you are a close family member or friend, you may not ask for compensation for your role as a trustee. If the trustee’s duties are particularly demanding however, it is not inappropriate for trustees to be compensated. How much is appropriate compensation for trustees? Some professionals charge an annual fee of one percent of the trust. However, the more modern trend is to charge an hourly rate for the time necessary to fulfill the responsibilities of Trustee. If you are handling all the duties of a Trustee, it would not be inappropriate to charge a fee. But if you are farming out some of the responsibilities, it may be appropriate to adjust your fee accordingly.
The Estate Planning and Probate Department at Brown Paindiris & Scott LLP has decades of experience in trust administration and asset management. If you or a family member has a Trust related issue, contact our office for a careful review.