Trustee Responsibilities

In this section from his book, “Pankauski’s Trustee’s Guide”, John Pankauski discusses the pros and cons of being nominated to serve.

Overview of a Trustee’s Responsibilities

Serving May Be Honorable, But At What Price? (Or Let’s Blame The Attorneys).

Many times trustees who are embattled in trust litigation raise their swords, place on their armor, and stand like a knight, arguing that they are continuing service as trustee because that is what the grantor wanted. While sounding noble, this shortsighted assertion probably couldn’t be further from the truth. It’s doubtful the grantor would want you to serve as trustee had he or she known that litigation would result. The truth is that trustee selection is often a neglected part of the estate planning process. You were probably nominated to serve as trustee without much thought, without your consultation, but because you knew the grantor, and, quite frankly, he or she had no better alternatives –

When a client is preparing to create a trust, careful thought must go into who the client shall nominate to serve as trustee, both now, and in the future. The truth is that every day in every state across America, attorneys are drafting trusts and meeting with clients to discuss, or are failing to discuss, who shall, or should, be trustee. I see people who are appointed, who accept appointment, or who try to be installed as, trustee, who have no business serving in a fiduciary capacity. I see individuals who absolutely are the wrong choice for a trustee. Many lack experience. Most have no, or at most, a minimal desire to gain insight or intellect or experience in managing millions of dollars and serving as trustee. Why?

Much of the blame lies in the hands of the attorneys who fail to properly explain the role of the trustee to clients. Who else can adequately advise the client on how to carefully select a trustee and successor trustee? Far too often, attorneys, and even clients’ financial and other advisors, fail to discuss possible scenarios of what a trust will look like when the client is gone. Or how a co-trustee or a successor trustee may act. Attorneys and other advisers fail to advise a client about the multitude of administration issues, pitfalls and traps for the unwary. And although I come down hard on attorneys, the truth is that much of the blame also needs to be attributed to the client. Most clients don’t even speak to potential trustees to discuss with them whether they wish to serve as trustee, how they feel about that, and what their role would be. Likewise, little thought goes into how your trustee may interact with your beneficiaries.

Family Member As Trustee

Deciding to serve as trustee, even deciding to decline to serve, can become a challenge for family members who are nominated to serve. There is a natural inclination to want to accept the mantle of responsibility of the trust and to serve as trustee. This is particularly true of trusts where family members are not only a trustee but also a beneficiary. This is very common in trusts which benefit the surviving spouse. If you are a surviving spouse, and you just lost your husband or wife, who has left wealth to you in trust, wouldn’t you want to be your own trustee? Wanting to be a trustee, is, however, quite different than being competent to serve as trustee –

The Successor

When a client creates a revocable trust, that client, the grantor of the trust, will customarily be his or her own trustee during lifetime. Why wouldn’t you want to run your own trust, right? Upon the grantor’s incapacity or death, a successor will take over. The successor will be that person named in the trust document who agrees to serve. If the named successor does not wish to serve, then the trust document may list the alternate, or other, successor trustees. If no one named in the trust document is willing or able to serve, then, depending on what the trust terms are, and what the governing law dictates, a court or the beneficiaries will appoint a successor trustee. There is a very common legal maxim that a trust shall not fail for want of a trustee –

You Can Decline To Serve

Here’s the good news. You don’t have to serve as trustee even if you are named. You can decline to serve. Merely sign a one page document which can be as brief as a sentence long, which states that you decline to serve. You need not give a reason. Deliver the declination, and a copy of the trust, including all original documents if you have any, to the successor trustee who is named in the trust document, and the beneficiaries. If there is no successor trustee named in the document, then you should notify all the beneficiaries in writing that you decline to serve and that they should retain counsel to protect their interests in the trust –

Resigning As Trustee

Resigning as trustee is a different issue. If you’ve begun to serve as trustee, but later decide that you don’t want to be trustee anymore, you can resign. No one can be forced to be a trustee, although a resigning trustee has ongoing duties to wrap up his or her tenure –

Recognize that resigning and ending your tenure raises a whole host of issues which will not be discussed in this book. There are, however, a few points to address.

Although you can give notice of your resignation at any time you would like to, you can’t just shut off your duties and responsibilities like turning off a light switch. During the resignation process, you will want to transition the trusteeship to the successor trustee. Until the trusteeship is handed over to, and accepted by, the successor trustee, you have an ongoing duty to continue to administer the trust properly. You can’t just quit and throw up your hands and close your eyes. My point is: don’t think it’s easy-in, easy-out. You just can’t ditch and bail at a moment’s notice. Not only do you have a duty to the beneficiaries of the trust to get them in good hands, but from a selfish standpoint, you want to close the books in a proper and timely manner – meaning that you want to leave the trusteeship knowing that there is no lingering liability that can come back and harm you. You don’t want to resign on a Monday, and hand over everything to the successor, and then get sued on a Tuesday, right? (That’s what lawyers are for.)

At the point of resignation, while still serving, you should be selfish. You will want to be discharged or released for your service as trustee. In other words, you want some certainty, some recognition, that what you did as trustee was proper and that no one will come back at a later time and sue you for alleged improper acts. This is important, but beyond the scope of this book: that’s what the lawyers are for.