Should I Serve as a Trustee?

You may have been asked at one point or another to serve as a trustee for a friend of family members’ trust. You say yes, but think to yourself, what does that actually mean?

The trustee of trust is a person who has agreed to hold and manage the assets in a trust for the benefit of another person or persons – a role that frankly holds significant legal and ethical obligations.

Trustee Responsibilities

A trustee has a lot of duties and responsibilities. Most trusts are established by a written legal document (a “trust agreement”), and that document is your instruction manual of how to administer the trust. It tells you things such as: (i) what kind of investments you can make; (ii) when and how you make distributions for the benefit of the beneficiaries and what considerations to take into account; and (iii) when and how to sell assets in the trust. The list is non-exhaustive and is specific to every different type of trust.

Additionally, a trustee has a “fiduciary duty.” This means you as the trustee have a legal obligation to act in another party’s best interest. In the case of the trustee:

  • You have a duty of loyalty to the beneficiaries. That means you can’t put your own interest or anybody else’s interest above the beneficiary’s interest with respect to the trust;
  • You have a duty of impartiality. That means if your friend has two children who are beneficiaries of the trust and you are particularly close with one of them, you cannot administer the trust in way that prefers the one you have a close relationship with. You must be impartial;
  • You have a duty of prudence. That means you must make good decisions with respect to the trust and with respect to the management investment decisions within the trust.
  • You have a duty of confidentiality. That means you cannot talk about the trust, it’s administration or the trust beneficiaries to third parties.

These are just the basic duties imposed on a trustee. As you can see, it is a lot of responsibility, and someone that has never served in a role like this may get overwhelmed.

Assistance with Trust Administration

Administering a trust can be very complex. You need to understand how to interpret the legal language in the trust agreement directing what you’re supposed to be doing to administer the trust. You need to understand the potential the tax implications in your decisions. You are required to file appropriate tax returns. You must keep records regarding decisions that you made regarding the trust. There are a lot of different components in how to administer a trust, and you may need professional help in making these decisions. Thankfully, a Trustee is allowed to hire professional advisors to help with these decisions, and those fees are an appropriate expense of the trust.

Liability of Trustee

We are all humans, and we are not perfect. That also applies to trustees of a trust. However, given that trustees have a fiduciary duty to the beneficiaries, if the trustee makes a mistake, there may or may not be some consequences.

For example, you take some of the assets and you invest that money so it can grow for the benefit of the beneficiaries. You hire a reputable investment advisor, and they invest the money in an appropriate asset allocation, some of which includes a high-risk strategy. Well, if the market goes down and that strategy loses value, are you liable for that? Probably not. As long as you made an appropriate decision in hiring that manager and their actions were appropriate.

On the other hand, you decide to make an investment decision that was much riskier, like a sports betting program and decided to bet on various sporting activities across the U.S. That likely would not be deemed a prudent investment for the trust, and you could be held personally liable for any losses incurred.

Conclusion – Should I serve as a Trustee?

Serving as trustee, especially for family members or for friends can be really rewarding for you and can be helpful to them; however, it’s not a role you should take lightly. Understanding the full scope of the role and the responsibilities and obligations that come along with serving as trustee is important for you to avoid unnecessary difficulty. In accepting this role, know what you are getting into, and hire the appropriate professionals who can help you make the appropriate decisions.

Questions About This Topic?

Contact us today if you have questions about this topic or if we can assist you with your Estate Planning needs.