As an avid Twins fan, I had an eye on last weekend’s MLB draft. In baseball, like most sports, it’s better to draft the best player available instead of a player who fit’s the team’s current needs. The same is true in picking your Trustee. We may think it’s an honor to name a child or loved one to administer our trust, but the reality is it’s hard work. A trustee will need to manage not only financial matters, but family dynamics as well.

Not a sports fan? Here’s an analogy most Minnesotan’s will understand: there’s an old saying that the two best days in a boat owner’s life are the day they buy their boat and the day they sell it. Forbes’ recent article entitled “How To Be An Effective Trustee” says that a similar notion applies to being a trustee – it’s an honor to be named and then a huge relief when it’s over. That’s because being a trustee is difficult.

Remember that a trust is a fiduciary relationship in which one party (the “grantor” or creator of the trust) gives another party (the “trustee” or manager of the trust) the right to hold title to property or assets for the benefit of a third party (the “beneficiary” or person who receives a benefit from trust assets). With most revocable trusts, the person creating the trust serves in all three roles. Since they created it, manage it, and benefit from it, trust assets are administered just like any other property owned by the grantor – they see little to no difference in how they manage trust property from property in their own name.

These roles split, however, upon the grantor’s death or incapacity. Once a grantor can no longer manage their property, a third-party steps in as a “successor” trustee while the beneficiary remains the grantor (if still living) or the grantor’s chosen beneficiaries (if the grantor has died). Having someone already set-up to serve as trustee can avoid the need for a court-appointed conservator or probate to administer a will.

Trusts are created to provide legal protection for the trustor’s assets, to make certain those assets are distributed according to the wishes of the trustor, and to save time, reduce paperwork and, in some cases, avoid or reduce inheritance or estate taxes.

Being a trustee requires knowledge about a wide range of topics, including:

• The trustee’s fiduciary duties, which include loyalty, impartiality, duty of care, protection of trust property, enforcement of claims and the duty to inform and account to beneficiaries, among others (violation of these duties exposes the trustee to liability).
• Understanding the details of the trust, like the specifics of the distribution instructions.
• Investments and the ability to engage and monitor investment managers.
• Administrative matters, such as record keeping and principal and income accounting.
• Estate planning, trusts and the basics of the estate, gift and generation skipping taxes.
• Income tax, including how trusts are taxed both by the federal government and the state.

While this is a long list of difficult topics, rest assured that a trustee is likely to lean on the expertise of an estate planning attorney and accountant to guide them through the complexities.

Beyond the legal theories and number crunching, a trustee must also be able to productively communicate and work with the beneficiaries on their financial wellness and distribution needs, which is an area that can be full of conflict.

Picking the right trustee can feel like a daunting task. Talk with an experienced estate planning attorney to discussion your situation in detail.

Reference: Forbes (May 31, 2022) “How To Be An Effective Trustee”