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 owe legally enforceable duties to the beneficiaries — the people or charities on whose behalf they handle assets.
A trust is a legal relationship that results when a person (often called a trustmaker, a settlor or a grantor) makes an agreement with a trustee to handle assets for the benefit of one or more beneficiaries. The agreement is normally set out in a written document — the trust instrument or the trust agreement. The first and foremost duty of any trustee is to read, understand and faithfully follow the exact terms of the trust instrument.
Once the trust agreement is made, the trustmaker transfers property to the trustee. The trustee actually becomes the legal owner of the property. However, the “real” owners of the property are the beneficiaries, who are said to be the equitable or beneficial owners; they are the ones who are supposed to benefit from the property.
A trust can have more than one trustee at a time. Each co-trustee must decide for himself or herself how best to carry out his or her fiduciary duties. Beware that a co-trustee can be held responsible for another co-trustee’s breach of a fiduciary duty. Thus, it is important that all cotrustees pay close attention to everything that is done in the administration of the trust. Any question or problem should be communicated to the other co-trustee or co-trustees immediately. Generally, when there are two co-trustees, both must agree on all matters of trust administration. When there are three or more co-trustees, 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 co-trustee may be required to blow the whistle on other co-trustees’ activities.
If you ever have questions about what to do as trustee, you should seek appropriate advice immediately. You should not hesitate to consult your lawyer, your CPA or other advisors.
The fact that you have been named as a successor trustee in someone’s trust instrument does not obligate you to accept that position. You must consider your decision to accept the job of trustee very carefully.
Once you accept the position, you accept all that goes with it. It is a position of great honor that involves great responsibility.
SCOTT MAKUAKANE, Counselor at Law
Focusing exclusively on estate planning and trust law.
www.est8planning.com
O‘ahu: 808-587-8227 | maku@est8planning.com
Kingdom Advisors founder Ron Blue takes an interesting approach to estate planning. He advocates lifetime giving as a way to assure that the objects of your bounty are worthy recipients of your wealth. This could play out a couple of different ways.
Giving assets outright to your loved ones is a way to give them full control over and responsibility for those assets. However, one of your intended beneficiaries could easily lose his or her inheritance as a result of a divorce, vehicle accident or bad business deal. And this could happen due to no personal fault of the beneficiary. For this reason, many estate plans include ongoing trusts that allow the beneficiaries to have as much control as they are able to handle, while at the same time insulating the trust assets from creditors and predators who might try to take those assets away.
The thing about leaving assets to your loved ones after you are gone is that you will have no idea how each of them will handle his or her inheritance. Your best guess during your lifetime could turn out to be wrong. So what about making gifts during your lifetime that will enable you to see how your intended beneficiaries handle their new-found wealth? This could be a great way to “test drive” your estate plan and determine how well it works while you are still able to make adjustments to it. If one beneficiary turns out to be a poor steward of your wealth, you can always redirect assets in your final estate plan to other beneficiaries, or provide greater restrictions on a spendthrift beneficiary’s control over your wealth.
The same principles apply to charitable gifts. Your favorite charity could turn out to be a poor manager of donated assets. It would be far better to find that out during your lifetime than to leave your loved ones regretting your philanthropic choices. If a charity does what you hope it will do with your gift, you can add to it upon your death. Not only that, but your gift may have far greater impact the earlier you make it. If, for example, you want to provide funding for scholarships so underprivileged children can go to college, the sooner you make your gift, the sooner a scholarship recipient will graduate from college, get launched in a career and turn around and “pay it forward,” as you have done.
As Ron Blue would say, you should consider “giving while you’re living so you’re knowing where it’s going.” It’s sound advice for anyone who prefers to test the water before diving in head first.
When Terry discovered his home had been burglarized, the frustration of having to replace his valuables paled in comparison to the feelings of being violated. Then, several nights later, someone entered his garage and stole his car. What Terry didn’t realize was that during the burglary of his home, the thief took his spare set of car keys. While still in shock over the initial crime, he now had to deal with being a victim once again.
If an estate plan is our final personal and intimate letter to our loved ones, why is it that we can’t understand it when we read it? This last intimate writing should be full of our unique, personal and emotional voice, yet, it reads like a sterile contract, devoid of any human feeling or emotion. Why?
In May of last year, Reuters reported that a Georgia judge had agreed to appoint a mediator to help the family of the late Dr. Martin Luther King Jr. decide whether to sell Dr. King’s Nobel Peace Prize and his personal Bible.
Like most Americans, you’ve probably spent years working to achieve the retirement of your dreams. There comes a point when this milestone changes from a distant goal to an imminent reality. You can make your first year away from work more rewarding and less stressful if you anticipate potential challenges and prepare for how you will handle this life change.