Your parents have named you as trustee of their irrevocable trust and other trusts that they would like created at their death. It is a tribute to their confidence in you that they would entrust their hard earned assets to your administration and oversight, but now what?
First, read the documents creating these trusts and setting forth the duties you are agreeing to perform as trustee. Then, ask yourself a number of questions such as – Am I comfortable with everything they are asking me to do? If not, and your parents are still alive and the trust document can be changed, talk to them about how you feel and see if they will make changes to the instructions in the document with their attorney.
If your parents are not alive or the trust cannot be changed, talk with your attorney about hiring someone or a firm to help you. A wise trustee is one who knows his or her limitations and reaches out to hire experts – be they accountants, lawyers, investment managers or others – to help. Every state's law permits trustees to hire experts to assist.
One responsibility that sometimes gives people pause is making decisions about distributions from a trust to siblings. Could there be hard feelings within your family as a result of your decisions? There are numerous ways in which to address this potential issue including creating separate trusts for each sibling or, if the trust document can be changed, having your parents include a "Trust Protector" which can be done under Idaho law, to make the distribution decisions.
Certainly one key part of any solution is to have a family discussion about your parents' wishes and your responsibilities and get everyone's thoughts and feelings expressed.
Another key responsibility that also gives people pause is investing the trust assets. Again, a wise trustee knows his or her limitations and hires experts to help with finding the right investment manager or firm who understands about investing trust assets well.
Valuing the assets in the trust and also keeping good recording and giving the beneficiaries an annual accounting of the activity regarding the trust's assets is another important role. If the trust owns readily marketable assets such as stocks, bonds or mutual funds, the statements provided by the investment management firm should provide the correct value. However, some assets are illiquid or not readily valued. Such assets in this class would include real estate, a business, or a private equity fund. In this case, a valuation expert can help with the valuation. Also, an accountant can help you with annual accounting. Reach out to your attorney or other experts who work with such advisors to find out the key questions to ask when interviewing firms.
Being a trustee is very different from being granted a power of attorney. A power of attorney gives you the right but not the duty to act. A trustee appointment imposes a duty on you as trustee to faithfully follow the instructions in the trust document, and meet the high standards of behavior with respect to your duties of: care and skill, undivided loyalty, and complete impartiality.
Standard of Care and Skill
Idaho law provides that a trustee must "observe the standards in dealing with the trust assets that would be observed by a prudent man dealing with the property of another " and "must administer a trust expeditiously". These are higher standards of behavior than you can exhibit if you were just dealing with your own assets. As a result, a trustee must do more than be honest in the trust's administration.
A trustee must not neglect the trust in any way. He or she must actively participate in, and oversee, the administration of the trust, including the investment of the assets.
Regarding the management of trust assets, while Idaho law prohibits a trustee from delegating all of his or her duties, it does provide that a trustee can delegate some. This permission is particularly important when dealing with the management of trust assets. Idaho law has relatively new and rigorous standards regarding investing trust assets, that, without investment management skills, a trustee could have difficultly meeting. However, investment management is a duty that can be delegated to another and a trustee is only liable for prudently making the delegation decision, and overseeing that agent. The trustee is not responsible for the actual decisions of the investment advisor.
Standard of Undivided Loyalty
A trustee must act in good faith and in the best interests of the beneficiaries. A trustee cannot make decisions or enter into transactions that benefit him or her to the detriment of the beneficiaries. A trustee should not borrow money from, or lend money to, the trust. Indeed, a trustee should not engage in any transaction in which the trustee has a personal interest without complying with legal formalities that address the presumed conflict of interest.
Standard of Impartiality
A trustee must fairly and reasonably balance the needs of each of the beneficiaries, not ever favoring one over the other, in his or her decisions unless specifically authorized by the trust document.
Other Important Duties of Trustees
There are also two duties imposed by Idaho law which cannot be delegated to another: the duty to inform a beneficiary of the trust's administration and assets, and the duty to keep confidential all matters pertaining to the trust.
In conclusion, accepting an appointment as trustee is an honor but requires attention to what is being asked of you and a plan regarding how you will fulfill your duties.
How Can We Help You?
Mathieu, Ranum & Allaire have extensive experience in advising trustees about their duties, responsibilities and rights. We work as a member of your advisor team to ensure that you receive all the information you need to make wise decisions and administer the trust in accordance with its terms. Please contact us should you like to discuss this very important role as trustee and how to best fulfill your responsibilities.