By: Matthew C. Zuengler, Attorney at Hager, Dewick & Zuengler, S.C.
As the population ages and the use of Revocable Trusts becomes more prevalent, many individuals will find themselves (perhaps without knowing beforehand) appointed as a successor Trustee. This will commonly arise when someone creates a Revocable Trust during his or her lifetime, often for probate avoidance. The creator of the Trust (the Grantor) will typically act as the initial Trustee. Following the Grantor’s incapacity or death, the successor Trustee is then called upon to act. While the initial reaction to the appointment as successor Trustee may be that of appreciation and honor, it is important to understand what duties and responsibilities an individual has by accepting this role.
From an administrative standpoint, the Trustee’s general responsibilities include identifying and collecting all assets subject to the Trust, whether currently owned by the Trust or payable to the Trust. The Trustee is also responsible for the payment of debts or obligations owed by the Trust or Grantor, including any taxes that may be owed. The Trustee must administer the Trust according to its terms, including the distribution of Trust assets to beneficiaries as outlined by the Grantor of the Trust. If the Trust provides for ongoing arrangements for a beneficiary (i.e., an ongoing Trust) the Trustee is responsible for understanding these provisions and applying the Trust funds accordingly. This often requires the Trustee to understand the circumstances of the beneficiary prior to making (or not making) distributions.
In carrying out these general responsibilities, the Trustee has specific statutory duties (known as fiduciary duties), including the following:
- Duty to provide information to the beneficiaries as to the administration of the Trust, including distributions, expenses, income, gains and losses experienced by the Trust.
- Duty of loyalty to the beneficiaries of the Trust, meaning a Trustee’s personal interest cannot conflict with and must be secondary to the beneficiaries’ interests.
- Duty to act impartially (i.e., not giving one beneficiary preferential treatment over another beneficiary).
- Duty to act prudently both as to the investment of Trust funds, as well as to making discretionary distributions to the beneficiaries of the Trust.
All of these responsibilities and duties require the Trustee to be organized and maintain meticulous records as to what is being done. Keeping good records is important for several reasons. As discussed above, the Trustee has a duty to account to the beneficiaries as to the investments, distributions and decisions made. By maintaining good records, the Trustee is able to communicate to the beneficiaries and provide accurate information and justification for what has transpired.
As one might surmise from these responsibilities and duties, acting as Trustee is not for the faint at heart. The failure to carry out the terms of the Trust or adhere to the duties as Trustee can open up the possibility for the Trustee to be sued. Accordingly, accepting the role as Trustee should not be undertaken lightly.
A Trustee may always seek out assistance at the expense of the Trust and, in many cases, should. When a Trustee is sued, it is often due to decisions made as to whether to make a distribution or, more often, due to poor investment returns of the Trust (e.g., a beneficiary alleges the Trustee imprudently invested or failed to diversify the Trust funds). While generally the expense of defending a lawsuit is borne out of Trust assets, litigation can be agonizing, time consuming and frustrating for a Trustee. In this regard, an experienced Attorney, CPA and Financial Planner can provide the Trustee with guidance and advice to avoid many of these pitfalls and minimize the threat of the Trustee opening himself or herself up to liability.