Estate Planning

Who Are You Going Trust to Be Your Trustee?

Who Are You Going Trust to Be Your Trustee? by Lisa Leonick

In order to answer this question, you need to understand a trustee’s job description. If you ask someone to be a trustee, you’re asking them to safeguard your property, perhaps for your benefit and certainly for the benefit of future beneficiaries of the trust.

Trusts come in different shapes and sizes. A trust can be a stand-alone document. They can be revocable or irrevocable. They can also be created by your will, known as a testamentary trust. This type of Trust only becomes effective after you pass away. Regardless of the type, the person in charge of it is called the trustee.

What is a Trustee?

The trustee is a fiduciary, which means that they’re protecting someone else’s assets. The trustee will be held to a very high standard in terms of their actions. A fiduciary has to abide by the terms of the trust. They must use their best business judgment in investing assets so that the principal is protected. At any given time, the beneficiaries of the trust may ask for an accounting and the trustee must be prepared to produce the financial books and records for the trust, as well as an accounting of the income and the outflows from the trust assets, whether they are real estate investments, bank accounts or some other type of investment vehicle.

This may seem like a daunting task to many people, and it can be, depending upon the assets involved. In the simplest situation, you may appoint a trustee for a minor that might require the trustee to take cash from your estate or trust and place it in a bank account invested in a certificate of deposit. Then, based upon the terms of the trust, the trustee may make withdrawals, perhaps on an annual basis, of the income and periodically for the health, education, maintenance, and support of the minor. Your trustee may also be called upon, based upon the terms of the trust, to make withdrawals at given ages. The trust may end some point at a given age for a minor, or it could continue forever and be a trust that goes on to the descendants of the beneficiary.

How can Trustees make decisions?

In any event, the trustee does not have to make all of the decisions regarding the trust on their own. They can hire investment advisors. Trustees can consult with bankers, accountants, and lawyers. They have to file a tax return and may have to engage an accountant to do that. There are different responsibilities but they don’t all fall on the trustee. The trustee could be seen as the quarterback, so to speak, of a trust where the assets are more complicated than just a simple bank account. The costs of these services should be borne by the trust and not the trustee.

It’s important for trustees to put the interests of the trust beneficiaries before their own interests. That means that there should be no self-dealing. Self-dealing occurs when a trustee uses trust assets to benefit themselves more so than the beneficiaries. For instance, a trustee might want to borrow trust assets to invest in a real estate deal that they could flip, keep the profit, and then return the trust principle. That certainly would be completely improper. There are more subtle examples, such as a trustee who invests trust assets with an investment firm that pays additional commissions to the trustee as a financial advisor. This creates an inherent conflict. The trustee could be inclined to ”churn” the account to earn more commissions as the financial advisor.

A Trustee’s responsibility

If your trust was created for Medicaid purposes, the trustee must be careful with how the assets are handled.  Otherwise they could jeopardize whether you qualify for Medicaid benefits that would pay for your long-term care or nursing home stay.

Because there is a fair amount of responsibility involved, trustees do get paid. Sometimes trustees performing this responsibility for a family member may waive those commissions. If they are paid  commissions, these are considered taxable income. The amount of commissions is controlled by statute and varies based upon the amount and when money is disbursed from the trust assets.

The trustee has potential personal liability if they don’t invest or handle trust assets properly. Therefore if they’re unfamiliar with these responsibilities or how to manage a trust, it’s advisable to retain an attorney for advice regarding these duties and obligations in administering a trust. Trust us to guide your estate planning and who you should choose as fiduciaries for your trust or estate. You can contact us either through our contact page or by calling us at (631) 486-9500.

Lisa Leonick

Lisa Leonick
Leonick Law, P.L.L.C.
TEL: (631) 486-9500


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