Forbes’ recent article entitled “How To Be An Effective Trustee” provides some great best practices for those asked to be a trustee.
- Make a team. No one person can have all the necessary skills and experience to be an effective trustee. Work with an experienced estate planning attorney, an investment advisor and a tax accountant knowledgeable about the taxation of trusts. It’s a good practice for the trustee to have regular meetings with the team of advisors, both as a team and individually.
- Understand the key trust terms. Understand what the trust document says and what the key terms mean. When you are named as trustee, a best practice is to read the entire trust document and go through the document with an attorney and have them explain the key terms. Some of these key terms may involve the following:
- Distribution standards
- Special provisions for investing, particularly direction to sell or not to sell certain assets
- Provisions the trustee should act upon, like the power to appoint a successor; and
- Knowing whether the beneficiary’s age will trigger distributions or any other actions.
- Work productively with beneficiaries. Dealing with beneficiaries is frequently the most challenging part of being a trustee. There can be differences of opinion over distribution amounts, investment strategy, or other matters relating to the management of the trust which can lead to disagreement. To avoid potential issues with beneficiaries and facilitate a productive relationship, trustees should try to practice following:
- Clear Distributions; and
- Providing Required Information.
- Documentation is Crucial. Although trustees can’t guarantee perfect results, they must act with care, skill and impartiality. They must have rational reasons for their decisions and documenting them is critical because it substantiates the trustee’s decision-making. Some examples of decisions that should be thoroughly documented include:
- Distribution Decisions
- Decisions That Set Investment Policy
- Initiation or Termination of Investments and Hiring and Firing Investment Managers/Funds
- Principal and Income Allocations;
- Verbal Communications with Beneficiaries; And
- Decisions to Hire Experts or Agents, like an attorney or an accountant.
To learn more about estate planning in the East Valley, Gilbert, Mesa and Queen Creek, schedule your free consultation with Attorney Jake Carlson by using one of the links above.
Reference: Forbes (May 31, 2022) “How To Be An Effective Trustee”