Guide to Trustees: What Do Trustees Do? How to Choose a Trustee? How to Manage Conflict with Trustees?
Choosing a trustee is an important decision and often one made with little experience. Most people only choose a trustee once or twice in their life. Our goal in this article is to provide information to help you make better decisions when selecting or working with trustees. In this article we cover:
What is the role of a trustee?
How to choose a trustee
What to do when you disagree with an existing trustee
What Does a Trustee do?
Trustees are appointed to carry out the instructions of the creator of a trust, legally known as the trust’s “grantor”. Trustees are not given broad decision-making power to do whatever they wish with the assets. Instead, their role is to ensure that the intentions of the grantor, as outlined in the trust document, are executed in their absence.
Trustees are like estate executors and may often be the same person. However, the powers of the executor end when the estate is settled, while the powers of a trustee continue if a trust is utilized to hold assets.
Trustees are fiduciaries. That means they are obligated to act in the best interest of the beneficiaries of the trust and in accordance with the trust document. That may not necessarily mean they do what the beneficiaries ask all the time, but they should be looking out for their interests over the long-term.
Do I Need a Trustee?
The answer is simple, if you are creating a trust that extends beyond your lifetime, you will need a trustee. You do not need a trustee for a “living trust” or a “revocable trust” because those trusts generally cease to exist after your estate is settled. But any trust that continues will require a trustee.
How Do I Choose a Trustee?
We recommend looking for three characteristics in a Trustee:
An individual with a basic understanding of business, finance, and legal matters. This person does not need to be an expert, but they need to be able to understand and execute instructions that may include complex legal or tax language.
Someone who tends to be a mediator or diplomatic in their approach to conflict. Trusts often last decades and unforeseen conflict may arise years after the creation of the trust.
A willing participant. The best trustees are willing to spend time understanding the trust, ensuring its assets are managed appropriately and looking out for the beneficiaries’ interests. Someone with the right skills, but a lack of commitment, may not spend the time required to make sound long-term decisions.
Trustees can be an individual family member (or members), a professional organization or both. When should you consider each type of trustee?
When to use an individual trustee:
When you want to ensure your intentions are carried out. Which is usually always! Family members or friends that know you well and are best positioned make decisions on your behalf. They often have years of relational background with the trust creator and the beneficiaries of the trust that they can reference to make wise decisions. We generally suggest appointing at least one family member or friend to serve as a trustee unless the situation is unique. They can always supplement their knowledge with professional guidance, but a professional trust company cannot replicate years of relational knowledge.
When to use an organization, law firm or bank trust company:
There are two situations that may require a corporate type of trustee. The first is when the trust is unusually complex for tax or other legal reasons. Tax or legal expertise may be required to manage the trust. The second is when there are significant personal conflicts between family members or beneficiaries. A professional organization is unbiased and will not be persuaded by the feelings of any one beneficiary over another.
Should I have more than one trustee? A co-trustee?
Having two trustees may end in disagreements that cannot easily be overcome since the voting is split one to one. Consider simply using one trustee. If the situation is complex, then a corporate trustee may be helpful serving as co-trustee to help manage the trust on a regular basis.
If you are concerned about the financial or legal acumen of your family members or friends, then you may want to consider a professional guide to help administer the trust. Professional support can range from having a law firm or bank appointed as trustee to simply having an investment or legal advisor to support individual trustees. There are a range of options to ensure that both the wishes of the trust creator and the appropriate administrative steps are followed.
What if I disagree or have a conflict with the trustee of a Trust?
Disagreements between one beneficiary and the trustee are not uncommon. However, if you think that the trustee is acting in bad faith or is violating their fiduciary obligations, then you may be able to have them replaced. Often, a trust will outline a process for replacing the trustee, especially if all or most of the beneficiaries agree to make a change. If the trust outlines the criteria, then a law firm may be able to help execute a change of trustee based on the trust document.
If the trust document does not outline removal criteria or the trustee disagrees with the decision to be removed, then you may need to go to court to settle the issue. Keep in mind that the burden of proof to force the removal of a trustee is very high. Courts will consider whether the trustee has violated their legal duty to the trust. The court is looking for actions well beyond simple disagreements on investments, distributions, or trust management. The entity was set up by the creator with a specific purpose and specific trustee. The court will defer to that judgement unless there is a clear case that the trustee is violating their obligations.
Since removing a trustee is difficult, if you have a disagreement, start by meeting with the trustee to understand their decision-making process. Ask why they took a specific action. Ask about any tax or legal issues. Often, the trustee is looking out for multiple beneficiaries, following the directives of the trust, or ensuring tax and legal obligations are met. If you still believe that they are acting inappropriately, then seek legal advice about next steps.
If you have questions or would like to discuss trusts or trustees with a professional, schedule a call here. We would be delighted to offer guidance based on our experience and expertise.