James A. List, Esquire
The Law Offices of James A. List, LLC
What is a trustee? What do they do? What are their qualifications? Who should we use?
These questions and many similar ones often fill up estate planning appointments. The need for qualified trustees continues to grow for many reasons. Families with disabled members need to provide special needs supports without impacting disability benefits. Family structures have changed, and trustees are necessary to protect second spouses and to protect children from previous marriages. Some trusts are critical for estate tax planning.
Trusts have three parties – the grantor, or the person creating the trust, the trustee, or the manager, and the beneficiaries. Trustees are fiduciaries – they owe a duty to the grantor to carryout his/her wishes. Trustees owe the beneficiaries of a trust a duty of care. What does this mean?
Trustees have to manage the assets that are entrusted to them. If it is commercial real estate, they need to preserve the property, collect the rents and maintain appropriate insurances. If the assets are cash or investments, they need to be prudently invested based on the criteria set forth by the grantor.
Trustees need to protect assets. If a squatter trespasses on trust property, the trustee needs file suit to evict them. If there is a dispute about a property boundary line, the trustee is obligated to research and advocate on behalf of the trust. If the investments are not performing, they need to be changed.
Trustees have to comply with federal and local laws. Trusts, like corporations, are persons in the eyes of the law. Federal and state tax returns need to be filed annually. For some types of special needs trusts, annual reports need to be filed with Medicaid; some minors’ trusts require that annual reports be filed with a court.
Beneficiaries have rights under trusts. This includes access to information and rights to distributions of income (and sometimes principal). Beneficiaries have the right to be treated impartially. Sometimes, beneficiaries have the right to replace trustees under certain circumstances, such as becoming a certain age.
Trustees, in essence, have to be everything – attorney, accountant, stock broker, insurance agent, realtor and diplomat. That is why the selection of a trustee is sometimes so difficult, and why if it is not handled properly, litigation can ensue.
So who should you choose? There is no requirement that a trustee have all of the skills or backgrounds listed above. Even commercial trust companies delegate some of these functions to outside professionals. The key is that the trustee hires professional advisors in those areas where expertise is needed. If the main asset is stocks and bonds, then a financial advisor is needed if the trustee does not have that background. If tax assistance is necessary, a CPA will fill the need.
Knowledge of and communications about family dynamics is the other key ingredient in selecting a trustee. Trustees should meet with the grantor and the beneficiaries to establish lines of communication and set expectations. These interactions can be stressful, particularly when a parent informs their child that their share of the family estate will be held in a trust. This is preferred, however, to finding out after a death in the family that the financially savvy uncle everyone dislikes and distrusts will be in charge of the trust assets, or the brother-in-law you dislike will be managing a marital trust for your benefit. Avoiding surprise is the key to preventing costly and divisive litigation.
The selection and process for replacing trustees is one of the most important decisions in trust and estate planning. Discuss this issue at length with your team of professionals.
August 22nd, 2009 at 1:51 am
I found the information you provided above very helpful and was hoping you could answer a question. (or perhaps two). I’m in a difficult situation and need some help.
1. Can the trustee of a trust also be a beneficiary?
2. Can an attorney who is named as an alternate PR in a will, witness the will? (client’s are legally blind)
Example: Mr.Jone’s will creates a testamentry trust naming his accountant as both trustee and PR. The drafting attorney is named as alternate PR and witnesses the will. Mrs. Jones is the primary beneficiary, neices and nephews residuaries. Shortly after Mr. Jone’s funeral, Mrs.Jones who is blind, unknowingly signs two POA’s, one giving the accountant full, unrestricted POA for legal and financial matters, and the second as agent for health care. No one is aware; they think the accountant is simply managing finances in his usual capacity.
My thought or confusion is this: If the grantor names a trustee to manage and distribute assets to a beneficiary, it seems as if it’s to create a “separation of powers” so to speak. Why would one have a trustee named to distribute assets to themself? When the trustee became POA for the beneficiary, isn’t that exactly what happend? Didn’t they essentially become one in the same? The trustee has in essence become beneficiary or vice versa.
I really appreciate your thoughts on this confusing issues.
September 30th, 2009 at 4:10 pm
Often, the drafting attorney is a witness to a Will or Revocable Trust, for several reasons. One is convenience, as the attorney is usually conducting the meeting. Another is the attorney is a good witness about a client’s capacity and about whether any undue influence has been exercised in the event of a Will contest.
Often, the attorney is asked to serve as Personal Representative or Trustee. So long as the maker of the Will or the grantor of the trust is advised that the attorney will be compensated, it is ok. My preference, however, is for the maker of the Will or the grantor of a trust to name the attorney as a co-personal representative or co-trustee, or request that the personal representative or attorney hire the attorney to assist.
It is difficult to comment directly on the CPA’s action in the fact pattern. A blind individual needs some assistance – some while they are alive, and other assistance after they are gone. The POA deals with the present; the PR and Trustee deal with the future. The question is whether the CPA is overstepping their bounds. That is a question for a family member to ask of the surviving spouse. While it may seem to be a conflict on its face, many people often have a close relationship with their professional advisors, and as long as the advisor (CPA or attorney) understands and carries out their fiduciary duties as personal representative or trustee, there should not be a problem. The question you raise is the reason I recommend having co-PRs or trustees – it makes the family more comfortable.
If you have any further questions, please e-mail me jalist@jalistlaw.com.
November 12th, 2009 at 5:29 pm
My 20 daughter will be receiving a personal injury settlement very soon and she would like for me to be the trustee to her special needs trust. I am reading everything I can and talking to people in order to gain knowledge of the subject, but my question is can my daughter choose me to be her trustee, or does the court (or whomever) determine who the trustee will be? Also, does the court/lawyer (whomever) have to be a cosignor on the trust? We are located in PG Maryland. Thanks for your help!
November 23rd, 2009 at 3:49 am
I’ve been interested in taxations for longer then I care to admit, both on the individualized side (all my employed life story!!) and from a legal standpoint since passing the bar and following tax law. I’ve rendered a lot of advice and rectified a lot of wrongs, and I must say that what you’ve put up makes complete sense. Please uphold the good work - the more people know the better they’ll be outfitted to deal with the tax man, and that’s what it’s all about.