Through the years I have advised many individuals, Private Professional Fiduciaries, and corporate Trust Officers on the administration of living trusts after the death of the grantor. The job of a Trustee is a high calling and should not be undertaken lightly. This newsletter highlights some of the difficulties encountered by children who are named as the parents’ Successor Trustees.
“BEING” VERSUS “SERVING”
One of the initial challenges facing a Trustee stems from the person’s perspective of the Trustee role. Does the person view the role as “being” a Trustee, with all the power and authority that comes with controlling the assets? Or does the person view the role from a service perspective, with the Trustee acting primarily on behalf of the named beneficiaries, giving those needs top priority?
Children of the grantor are particularly challenged when acting as the Successor Trustee. This is due, in part, to the role the child played in the family dynamics during the parent’s lifetime. It is nearly impossible for a child, upon the parent’s demise, to suddenly adopt a different role from the one the or she had while the parent was alive. However, I believe it is important for the child who has been named a parent’s Successor Trustee to strive to take on a new identity during the period of the trust administration. This new identity is that of a neutral third party administering the trust assets according to the direction given in the trust agreement. By adopting a neutral third party identity when acting as Successor Trustee, the child is better able to conduct the trust administration as a true fiduciary, upholding the high standards of a fiduciary set by law.
USE OF A PROFESSIONAL
Many of my clients prefer to name their children as their Successor Trustees to keep the administration of their trust in the family and because they have great faith in their children’s ability to act appropriately and carry out their stated wishes.
Sometimes, however, it is better for the relationships between the children after their parents’ deaths to have a Private Professional Fiduciary step in and handle the trust administration of the parents’ trusts. The compensation of a professional is comparable to the “reasonable” compensation allowed in most trust agreements. Having a neutral third party as Successor Trustee, means there is no power play between the children, no righting of perceived wrongs that took place during their childhood, and potential arguments about what the child/Trustee may or may not be doing can be prevented.
DUTIES OF A TRUSTEE
A Trustee has several important duties toward trust beneficiaries. These duties form the high standard the law requires of a person who is handling someone else’s financial affairs. The Trustee of a trust has a primary duty to administer the trust according to the terms of the trust agreement. The Trustee is acting on behalf of the trust’s beneficiaries and is looking out for their best interests. There are specific duties of a Trustee, some of which are identified here.
The Trustee cannot treat one beneficiary more favorably that another beneficiary. Too often, long standing family dynamics come in to play and the child/Trustee finds himself or herself in the position of being tempted to take an action that may favor his or her own interests and not treat the other beneficiaries as favorably. An example of this is when the Trustee want make a preliminary distribution for one beneficiary but not to distribute the same amount to another beneficiary because the second beneficiary does not “need” it as much as the first.
The Trustee must keep the beneficiary informed. When the Trustee is the beneficiary’s brother or sister, there may be times when the Trustee would prefer not to tell the beneficiary about all the decisions that need to be made during the administration of the trust. Sometimes this is because the beneficiary may argue with the Trustee about the decision to be made and the Trustee would prefer not to get into an argument. Nevertheless, the Trustee should consider whether the decision would be discussed with an unrelated third party beneficiary, and if so, the Trustee should discuss the decision with the trust beneficiaries.
The Trustee must keep accurate records and pay taxes on behalf of the trust. The Trustee must disclose to the beneficiaries all of the transactions that occurred during the administration of the trust. This includes income from all sources, reinvestment of dividends, and a description of the expenses paid. The records also should reflect the value of the property at the beginning of the administration and the value of the property at the time when the trust is ready to be distributed to the beneficiaries. The beneficiaries are entitled to know the details of trust transactions.
The Trustee must segregate the trust property from the Trustee’s own property. It may seem obvious that the Trustee must not commingle assets of the trust and the Trustee’s personal assets. Yet, this duty may be breached if the Trustee views his or her role as the “owner” of the trust property. The temptation to see the trust account to which the Trustee has access as being available for the Trustee’s own personal liabilities can become a great temptation.
REMEDIES FOR BREACH OF DUTIES
If a Trustee has violated his or her fiduciary duty to the trust beneficiaries, they are entitled to file suit to remove the Trustee, to request that the Trustee pay monetary recompense to the beneficiary who has been damaged, and/or to compel the Trustee get court approval of the accounting for the trust estate.