TRUSTEE text under a magnifying glass on green background. Illustration

Being a Trustee: What to Expect and Consider

You’ve spent your whole life being good with money matters, making good investments, keeping to a budget, understanding the market and the economy – your whole family knows this about you. They admire how savvy you are and how you make informed money decisions. So naturally, when someone in your family is looking for a Trustee to administer the assets they have placed in a trust, they come to you! And you are so honored that you accept the role. You are now the trustee of the Family Trust.

Long before I started working with trusts and estates, I first came across the term trustee on the TV show 90210. A group of wealthy California teenagers, all with trusts, would routinely go to their trustee asking for money for a Porsche, a beach bungalow, a Gucci handbag, etc. After a few questions, the trustee would inevitably give the kids hundreds of thousands of dollars – no harm, no foul. I now realize, based on 20 years of experience, good trustees are not ATMs, and the role of trustee is way more demanding than most people realize.

Don’t misunderstand; I absolutely love what I do administering trusts for our clients here at LNWM. Working for a corporate trustee, I am not part of the families whose trusts I oversee, and so I can rise above the family dynamics that can bias and even harm decision-making. This gives me the freedom to do what is required of a trustee under the law: to act in a fiduciary capacity.

Here is the definition of fiduciary duty that all trustees must abide by:

“A fiduciary duty is the highest standard of care in equity or law. A fiduciary is expected to be extremely loyal to the person to whom he owes the duty (principal) such that there must be no conflict of duty between fiduciary and principal, and the fiduciary must not profit from his position as a fiduciary. The fiduciary has a duty not to be in a situation where personal interests and fiduciary duty conflict, not to be in a situation where the fiduciary duty conflicts with another fiduciary duty, and a duty not to profit from his fiduciary position without knowledge and consent. The distinguishing or overriding duty of a fiduciary is the obligation of undivided loyalty.”

A trustee manages the trust assets and distributes them as the trust document directs. The actual functions will vary depending on the type of trust and its provisions. But no matter what kind of trust you’re dealing with, you’ll have certain challenges and issues:

  • Identify and protect trust assets
  • Interpret the intent of the trust document
  • Be honest and forthright while abiding by all trust rules and regulations
  • Communicate regularly with the beneficiaries
  • Manage the assets within the trust
  • Close down the trust when its time in effect expires

You’ll also be the decision maker for payouts and income distributions from the trust. Remember fighting with your siblings over who gets the last popsicle, or who gets to use Dad’s car? Now think of it on a grander scale: Who gets money to further their education, when they already have two degrees and aren’t even using them? Who gets money to purchase a new car, when the one they have works just fine?

What Can Go Wrong?

Many of us believe that our family is the greatest and will continue to get along no matter what life circumstances arise. We support one another and think that no one would ever fight over money. However, when you’re the sole financial decision maker for the family, no matter the size of the family or the portfolio, you may begin to struggle with questions such as “did I make the right decision?” “should I have distributed those funds?” “should I have made that investment?” And feelings of resentment or disagreement can start to surface in those close to you. It can become awkward all around.

Should you be asked to serve as Trustee for the family trust, consider it an honor. But then step back and weigh your options. This isn’t a decision that can be made easily, but rather, it will take some thought. You should know exactly what will be expected of you and you should then ask yourself: Do I have the time and experience and inclination to do this and do it well? If not, what is the best way to proceed for the good of everyone involved?

Some other options to consider:
***Become Co-Trustee. Instead of being the sole trustee, you can serve as co-trustee with an experienced and unbiased Corporate Trustee, whose trust specialists can provide guidance and conflict resolution along the way.

***Become a Trust Protector. You would then be the main point of contact between the trust beneficiaries and the trustee. A Trust Protector provides the trustee with insight into the family history and dynamics so that the trustee can act in the best interest of each beneficiary while carrying out the wishes of the person who set up the trust.