How many people even give the duties of a trustee any thought when they are choosing who they will designate to serve in that capacity? A trustee’s role is a complex mix of duties, responsibilities and potential liabilities, and in spite of what some people might think, is not to be undertaken lightly!
Understanding of the role
Does this mean you should be a professional trust officer if you are going to serve as a trustee? That doesn’t hurt, but it is not required. Some of the best trustees have few formal qualifications but a wealth of experience, appropriate characteristics and a willingness to learn. Trustees must however fully understand their fiduciary responsibilities or they will place themselves at considerable risk.
Familiarity with the trust documentation
It is essential that a trustee is totally familiar with the trust documentation, whether that is in a stand alone trust or a testamentary trust (formed under a will). Once the trustee relationship has been established it is all too easy to forget the terms of the trust, which can lead to unfortunate mistakes. It is crucial that the trustee fully understand his or her role and responsibilities as fully set out in the trust, taking particular care to note any unusual provisions. If a trustee is unclear regarding the meaning of any provision, he or she should retain professionals such as a CPA or attorney to advise them.
At the root of most trust litigation is a failure to communicate. It is essential to be a good communicator, which includes being a good listener. Face to face communications with the pertinent parties are preferred over phone conversations, phone conversations over email, etc. Along with the actual communication, the trustee must keep detailed notes of those conversations. This allows him or her to recollect key facts from those communications even many years later.
A good trustee must have empathy with people. A solid trustee relationship with a beneficiary will inevitably involve disclosure of significant personal detail, understanding as to why a beneficiary might be acting in the way that he or she is, an ability to be firm but fair in delivering good or bad news, while being able to explain to the beneficiary that the trustee may not always be able to say “yes” to their requests. To the extent permitted by the trust documents, the trustee should also maintain a relationship and open communication with secondary beneficiaries even though they may not yet be entitled to or receiving any benefits from the trust.
Of independent mind
Key to the role of trustee, it is crucial that the trustee is able to stand independently from the settlor and the beneficiaries to make up his or her own mind on any particular issue without feeling either compromised or in any way bound to support a particular party’s course, other than as directed by the actual trust documents.
Settlors and beneficiaries will nearly always welcome a trustee who takes initiative. If it is apprehended that tax changes might impact on one or more of the beneficiaries then the beneficiaries will expect that their trustee is at least aware of these changes even if they cannot advise on them personally.
Having a balance of various skill sets
An ideal trustee has a reasonable level of legal knowledge, is relatively tax conversant (at least has an idea when there may be tax implications for a settlor or beneficiary) and has some understanding of investment matters. In reality of course it is not likely a trustee will excel in each area, but wherever they feel they are deficient, hopefully they will be able to apprehend this quickly and ensure that advisers with the appropriate skill sets are retained to support the trustee.