Get up to speed about the trustee process as John Pankauski discuses sharing of trustee responsibility from his book, “Pankauski’s Trustee’s Guide”
You may not like your co-trustees. The grantor may have appointed multiple trustees who are required to serve together.
Even if you had a cordial personal relationship with those persons in the past, a trust can change all that –
Co-trustees administer the trust by majority rule unless the trust document demands unanimous decisions. A recurring problem is when there are only two co-trustees and they do not get along – and of course are required to agree on everything. In such a case, it may make sense to have a third co-trustee such as an impartial trust attorney or bank or trust company serve as the tiebreaker. The bank can also invest and manage the assets, provide monthly statements, and assemble data for tax and other purposes.
A co-trustee may not simply rely on the work of the other co-trustee and avoid liability. Although you have a duty to cooperate with your co-trustee, you have a duty to do your own work, to use your own judgment, to form your own opinions, and to develop and act on your own, individual, thoughts. You can’t simply point to the other co-trustee because they may be smarter and have more experience. You can’t turn a blind eye to any aspect of the trusteeship. To the contrary, it’s your job to watch and monitor your co-trustee for the benefit of your beneficiaries.
So let me dispel any misconceptions or myth that you will have a lesser, limited, or diminished role just because there is a co-trustee. Your potential liability for mismanagement is certainly not diminished. While it may make sense for the co-trustees to divvy up some of the work, and even take charge with certain tasks, each co-trustee is still required to know what’s going on with the other co-trustee, and to insure that all actions are proper and in the best interests of all beneficiaries.
At the risk of sounding cynical, co-trustees often don’t get along. That’s why they call us.
If Co-Trustees Disagree
If a co-trustee takes an action or does something which you believe is improper, you have a duty to notify the other co-trustees, and otherwise state your objection or dissent in writing. There is no uniform rule across the country as to whether stating your dissent in writing exonerates you from liability. You may need to do more. Certainly we can think of actions by co-trustees that you disagree with but do not or will not necessarily harm the trust or require you to take further action. Reasonable trustees might disagree.
Example 1: Assume that 20% of the trust’s portfolio consists of one privately held company. A vote is taken by the trustees on whether to retain the stock concentration or not. A single, dissenting co-trustee does not agree to retain the concentration but is outvoted 2 to 1. The dissenting co-trustee should absolutely have his or her dissent reflected in writing and on the record. It is not unusual for co-trustees to have regular meetings and to have minutes of the meetings recorded, approved and retained. If the co-trustees are not keeping meeting minutes, record the dissent in writing (email or letter.)
Example 2: Assume that trust real estate was appraised at $2 million. A developer who employs the daughter of two co-trustees wants to purchase it for less than appraised value. Your written dissent is not enough. The sale for less than the appraised value, to a buyer which has a personal connection to the two co-trustees, requires you to take greater action. You should point out, immediately and in writing, this act of self-dealing, the conflict of interest, and seek their rationale for the sale. If your inquiry is met with deaf ears, you, as trustee, would have a duty to either enjoin the sale, or otherwise seek their removal, through court action. You might even, perhaps more simply, ask that the court appoint a temporary or special trustee to deal with just the real property.