Insights When Choosing or Agreeing to be a Trustee
staggering amount – $59 trillion – is projected to be passed down to heirs, charities and taxes between 2007 and 2061.
“We are in the middle of a massive, unprecedented wealth transfer from the World War II generation to the Baby Boomers, and then to subsequent generations,” says family wealth guru and noted attorney John Pankauski, author of the new book, Pankauski’s Trustee’s Guide: 10 Steps to Family Trustee Excellence.
“But much of that wealth will not be given to beneficiaries outright.”
Instead, he says, it will be held in a trust, which is a distinct entity, much like a corporation. The trust is managed by a trustee, who protects the trust property for the benefit of the beneficiaries. Sounds good – as long as trustees are honest individuals who don’t use the trust as a personal ATM, and simmering rivalries among beneficiaries don’t explode. Before making a selection, you may want to consider the following:
Don’t choose just anyone! Family members, friends and even felons theoretically could be entrusted with managing an inheritor’s money. But tread carefully. “Your hard-earned money could be fought over, misspent or squandered if you leave inheritances in a haphazard way or choose a trustee who handles the trust improperly,” Pankauski says. A family member often is chosen, but he warns that can lead to ill will among relatives. The decision on the trustee should be treated like a business consideration, not a personal one.
Multiple trustees are allowed, but can cause problems. Personal relationships that were previously cordial can turn icy. Co-trustees administer the trust by majority rule unless the trust document demands unanimous decisions. In that case, it may make sense to have a third co-trustee, such as an impartial trust attorney or bank or trust company, to serve as the tiebreaker.
Being a trustee is a great responsibility Perfection is not required, but incompetence won’t be tolerated. Criticisms could flow freely. If you’re holding a lot of cash and the markets go up, beneficiaries may complain that you failed to capture those gains. If you’re fully invested in the market and the market takes a dip, the beneficiaries may complain that you’re overexposed. Seriously consider whether the compensation for your duties as trustee is worth the potential headaches.
You don’t have to accept the appointment. You can decline to serve. Merely sign a one-page document, which can be as brief as a sentence, stating you decline. No reason is required. Deliver your statement and a copy of the trust, including all original documents you have, to the beneficiaries and the successor trustee named in the trust document. If no successor trustee is named, you should notify the beneficiaries in writing that you decline to serve and they should retain counsel to protect their interests.
You can agree to serve and later resign. But doing so raises a host of issues. You can’t just ditch your duties. You are still in charge until there is a smooth transition to a successor.
Regardless of whether you plan to create a trust, or you have been appointed trustee of one, you will want to seek legal counsel.
“The laws that govern the management of a trust vary from state to state and evolve over time,” Pankauski says. “The right guidance is essential.”