You were named as successor Trustee of a trust created by a family member or friend, and that person just died. What now? Before you rush in, think about what awaits.
Until you sign on the dotted line, the fact that you have been named as a trustee does not obligate you to accept that position. Decide carefully, because once you accept the job, you accept all that goes with it. It is a position of great honor, and it involves great responsibility.
A trustee is what the law calls a fiduciary. A fiduciary is a person who is responsible for taking care of something that belongs to someone else. Under the law, fiduciaries are answerable to the beneficiaries (and possibly the Court) for the things they do—or fail to do.
A trust is a legal relationship that results when a person (who we’ll call the trustmaker) makes a written agreement with a trustee to handle stuff for the benefit of beneficiaries. (“Stuff” is what the author calls everything a person owns. It could include real property—land and buildings—and personal property—everything else). Your primary duty as a trustee is to read, understand, and faithfully follow the terms of the trust agreement.
When the trust agreement is made, the trustmaker transfers stuff to the trustee. The trustee actually becomes the legal owner of the stuff. However, the beneficiaries are the ones who are supposed to benefit from the stuff. Chances are, you will hear from them if they are not receiving the benefits they expect.
A trust can have more than one trustee at a time. Beware that a cotrustee can be held responsible for another cotrustee’s breach of a fiduciary duty. Generally, where there are two cotrustees, both have to agree on all matters of trust administration, and where there are three or more cotrustees, the majority rules. In order to minimize the chances of being held responsible for someone else’s poor judgment or breach of duty, a cotrustee should be sure to make a written record of any points of disagreement about trust business. In extreme cases, a cotrustee may be required to blow the whistle on other cotrustees’ activities.
If you ever have questions about what to do as trustee, you should seek appropriate advice immediately. Don’t hesitate to consult your lawyer, CPA, or other advisors.
The law does not demand absolute perfection from you. However, it does demand absolute loyalty, absolute honesty, and complete and accurate disclosure—even if that disclosure could cast you in an uncomfortably negative light.
Your authority comes first and foremost from the trust agreement, and your duties and powers described there are your primary instructions. You should read the trust agreement with care, and from time to time read it again. You will never have an excuse for not following the trust agreement.
The “dark side” of serving as a trustee is that you can be held personally liable in the event that you do something you shouldn’t have, or you fail to do something you should have, and the trust is harmed as a result. Even if you acted with a pure heart and noble intentions, you could have to reach into your own wallet to restore any losses to the trust.
Before you rush into the job of trustee, be sure to determine whether you can devote adequate time and attention to the job, be armed with a clear understanding of the trust agreement and your duties, and have a team of legal, accounting, financial, and other advisors at your side to help you do your best by the beneficiaries.