What to Consider Before Agreeing to Become a Trustee

Being asked to serve as a trustee for a loved one is an honor. A trustee is responsible for managing and distributing the assets within a trust in accordance with the wishes of the grantor (the creator of the trust). The fact that you’ve been asked means your loved one views you as someone of great honesty and integrity.

However, serving as a trustee involves a significant amount of responsibility — and sometimes even legal liability. Here’s what to consider before making a decision.

Understanding the Role of a Trustee

Your responsibilities will vary depending on the type of trust. These are a few common trust types:

• Revocable Trusts: Can be easily changed after formation
• Irrevocable Trusts: Cannot be easily changed after formation
• Special Needs Trusts: Can be used to support a beneficiary with special needs

Certain kinds of trusts demand more of trustees than others. For example, revocable trusts are typically subjected to estate taxes, and as a trustee, you’ll be responsible for filing and paying those taxes.

Revocable and irrevocable trusts are usually used to pass down assets after death, but special needs trusts are more complex. As a trustee of a special needs trust, you will need to continually manage assets in the trust and ensure they are used in a way that supports the beneficiary’s best interests.

Legal Responsibilities and Liabilities

As a trustee, you will have several legal responsibilities:

• Loyalty to the Trust: Acting in your own self-interest is fraudulent
• Personal Attention: You may not delegate your responsibilities, but you can consult lawyers, accountants, etc.
• Carrying Out the Grantor’s Intent: You must follow the grantor’s wishes even if a beneficiary objects
• Accounting: You must maintain records and financial statements of trust activity

In Kentucky, you can be held liable for breaching your fiduciary duty (your duty to act in the best interests of beneficiaries). To reduce your risk of accidentally doing this, it’s wise to consult an estate planning attorney.

Time Commitment Involved

As you can see, it often takes a great deal of time to perform trustee duties effectively. Even if you’re eager to take on the role, carefully weigh it against your existing personal and professional commitments first.

Financial Knowledge and Management Skills

A strong financial knowledge base is essential for being an effective trustee. This is especially critical if administering the trust includes managing investments.

That doesn’t mean you must handle everything alone. You may call in investment advisors and accountants, but you may not allow them to be the ultimate decision-makers for the trust.

Interpersonal Skills and Family Dynamics

Being a trustee is often a balancing act. You must balance the interests of all beneficiaries, and in order to administer the trust according to the grantor’s wishes, you sometimes have to say “no” to a beneficiary.

Understandably, that can lead to considerable tension — particularly if you’re managing a family trust. To be a good trustee, you need strong interpersonal skills (and a good bit of diplomacy, too).

Compensation and Expenses

Trustees aren’t always compensated, especially if they’re overseeing small personal trusts. If you are paid for your efforts, it may be a fixed fee or a small percentage of the trust’s assets under management.

Some of your out-of-pocket expenses can be reimbursed by the trust. However, in most cases, beneficiaries must agree that expenses are “reasonable” to reimburse you — and “reasonable” is subjective.

Exit Strategy

Before taking on the role, make sure you understand what steps to take if you determine you need to resign. Because you’re responsible for the trust, you’re also responsible for ensuring a smooth transition to a new trustee.

Seeking Professional Advice Before Accepting

This choice isn’t one you should take lightly. Consulting with an estate planning attorney is a critical step. An attorney will be able to review trust documents and help you gain a clear idea of what will be expected of you in the role. With that understanding, you’ll be able to make an informed decision.

Making the Decision

Ultimately, you’re the only one who can determine whether you’re equipped to be a trustee. Take your time with the options — you need to understand your responsibilities, the legal liabilities, and the impact the position may have on the rest of your life. When in doubt, seeking legal and financial advice from an experienced trusts attorney is always wise.