When a family member or friend asks you to serve as the trustee, it’s an honor, conveying they trust you to look out for the beneficiaries. It is also, of course, a big responsibility. Before accepting, make sure you have the time and understanding needed to fulfill the commitment.
Understanding Trusts: The Basics
Investopedia provides this snapshot: A trust is a fiduciary relationship in which one party, known as a trustor, gives another party, the trustee, the right to hold title to property or assets for the benefit of a third party, the beneficiary. Essentially, the trustee manages the trust. Generally, a trust agreement contains details about the intent of the trust. Attorneys advise prospective trustees to reading the trust document carefully before agreeing to the role, noting that it is essentially your “instruction manual,” and should detail what you are expected to do with the assets you are entrusted to manage. If you are unclear about anything in the trust document, be sure to ask before committing to serve as trustee.
Given the significant fiduciary duties undertaken by a trustee, the trust agreement may require a trustee bond— a specific type of fiduciary bond, which protects the interests of the trust and its beneficiaries in accordance with applicable state law. Essentially, trustee bonds guarantee the faithful performance of the trustee. As a leading national provider of many types of fiduciary bonds, Colonial Surety makes it easy and efficient to obtain a trustee bond. Just get a quote online, fill out the information, and enter your payment method. Print or e-file the bond from anywhere—even the law office. Obtain Your Trustee Bond Here.
Dig Deeper
Trust documents don’t always provide enough information about the purpose of the trust and timeframe for the trust —or the help available for the trustee. Chambliss, Bahner & Stophel provide this guidance to help prospective trustees dig deep into understanding the expectations and commitment involved:
Often the trusts say that the trustee may distribute principal for the benefit of the surviving spouse or children for their “health, education, maintenance, and support.” Is this a limitation, meaning you can’t pay for a yacht (despite arguments from the son that he needs it for his mental health)? Or is it a mandate that you pay to support the surviving spouse even if he could work and it means depleting the funds before they pass to the next generation? How are you to balance the needs of current and future beneficiaries? It is important that you ask the grantor while you can. It may even be useful if the trust’s creator can put his or her intentions in writing in the form of a letter or memorandum addressed to you.
As trustee, will you be on your own or working with a co-trustee? If working with one or more co-trustees, how will you divvy up the duties? If the co-trustee is a professional or an institution, such as a bank or trust company, will it take charge of investments, accounting and tax issues, and simply consult with you on questions about distributions? If you do not have a professional co-trustee, can you hire attorneys, accountants and investment advisors as needed to make sure you operate the trust properly?
Are you being asked to take this duty on until the youngest minor child reaches age 25, in other words for a clearly limited amount of time, or for an indefinite period that could last the rest of your life? In either case, under what terms can you resign? Do you name your successor or does someone else?
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