Serving as Trustee

Aunt Edna died and you
just found out you were appointed trustee. Read on.

People Trust in Trusts:
A substantial portion of wills establish trusts. Many wills include
multiple trusts: by pass (applicable
exclusion) trusts to safeguard the amount the first spouse to die can pass
without estate tax, marital (QTIP) trusts for the excess, trusts for children and other heirs who are minors are the norm. Trust established while the grantor is
alive, to protect assets, save taxes and forth other reasons could trigger the
issue of your being appointed trustee. Increasingly trusts that last for a beneficiary’s entire lifetime (not
just to age 21 or 25) are used. Trusts protect against spendthrift heirs, divorce, lawsuits and
so on. But a common denominator
of all of these is a trustee.

Whatdo you do: if you‘re appointed a trustee? It’s a lot harder than most people think. There’s a tad more to it then just collecting trustee
fees. There are scores of legal, tax, time and emotional pitfalls, especially if the others involved are family. You need to
evaluate these carefully before you accept the position, and if you accept the
position you have to discharge your duties with the requisite care and
formality.

Attorney:  hire a lawyer to
represent you as trustee and review the trust document from the perspective of your serving as trustee. Even if you were involved in the planning of
the trust before it became effective, you should go through this exercise. This is a very different point of view as compared to the perspective taken by the grantor when planning the trust.

To Do List: Compile a
list of what you have to do and when with the lawyer. This will vary greatly based on the trust
document, state law, and the circumstances affecting the particular trust
(beneficiaries, assets, etc.). You need to weigh the moral obligation of
carrying out the request and wishes of a friend or family member who appointed
you, and the responsibilities and commitments necessary to carryout the role.
Objectively determine whether you have the time, ability and desire to carry
out these duties. If you’re going to reject the appointment, do it before you
begin to serve, and do it with the appropriate formalities.

CPA: Hire an accountant to assist you with several important matters: tax
planning (tax consequences of distributions, state tax filing positions,
treatment of investment management fees), tax preparation (which returns are to
be filed, what reporting positions should be taken, what returns and with what
disclosures should be filed with which states), recordkeeping (what records
should you maintain, which if any should the accountant assist with, what
should be reported to the beneficiaries) and accountings (informal or formal
records of the trusts activities). When you meet with the CPA also set up a checklist of tax and accounting
issues.

Investments: Understand the terms of trust, the needs and current circumstances of the beneficiaries, and
that you, or investment professionals that you as trustee retain, create an
investment policy statement that documents how the trust objectives are met in
light of current circumstances.  This document should demonstrate
compliance with the trust and applicable state law, in particular the prudent investor act of the state that governs the trust.

Unique Trust Purpose:
You should also carefully consider any unique aspects of the trust for which
you are serving as trustee. If the trust is intended to hold only insurance,
planning for insurance and meeting the unique requirements of an insurance
trust will be vital. If the trust holds a personal residence and is intended to
qualify as a QPRT (special house trust to remove the value of a house from the
grantor’s estate in a tax advantaged manner), then those unique requirements
must be addressed. If the trust owns S corporation stock, you have to address corporate governance of the
S corporation, vote shares, and comply with special S corporation requirements.

Distributions:
Project
what is needed and/or required. Understand what the trust document says about distributions. You
may have to poll beneficiaries to determine needs. You may have to prepare a
budget to coordinate investments and distributions.

Trust termination: When the trust
terminates you have to report to the beneficiaries, file a final tax return and
make final distributions.

Crummey powers:
These
are used in many irrevocable trusts to qualify for the annual gift tax
exclusion and become the responsibility of the trustee to issue when new gifts are received by the
trust.

Emotional pitfalls are common, few families lack “stuff” to create issues out of. And,
there’s nothing like money to bring those issues to the fore.

Serving as
a trustee can be emotionally rewarding and fulfill the wishes of a close friend
or family member, but the task should not be taken lightly.