Let’s say you’ve discovered that a recently deceased loved one named you successor trustee. We have a message for you: You are not a dictator, you are not royalty, you do not have a license to torment the relatives who are beneficiaries, and you don’t have to accept. You will be governed by some trustee’s rules, and they are important to understand and follow.
This comes to mind because we recently have sued trustees who failed to respect the basic requirements of the job. In at least one case, the trustee might face criminal liability. That’s right, it’s possible the trustee will spend time behind bars.
The truth is, it’s pretty rare for a trustee to abuse his or her position. But it does happen; trustees have power, and in families, the dynamic can quickly become toxic. Being an effective trustee means setting aside personal grudges and emotional baggage, having a clear understanding of the job, and making an effort to do it well.
All trustees are governed by a set of trustee’s rules. Particularly if you are a family member trustee and you choose to forge ahead, we have some tips for being effective:
Understand and Follow the Trustee’s Rules
Although trusts are private arrangements and there’s no court involvement unless something goes wrong, the Arizona Trust Code (“ATC”) provides lots of rules about trusts. The trust document itself is the main source of information regarding a trustee’s duties and responsibilities. But that’s not the end of it. Under the ATC, there are certain rules that are mandatory, and one of them is “the duty of a trustee to act in good faith and in accordance with the purposes of the trust.” (A.R.S.§ 14-10105) The ATC’s default rules also tell you what to do if the trust doesn’t specify. There are also court rulings that help serve as a guide. As a starting point: Read the trust, and if you don’t understand it completely, get help.
Know Your Role
As Trustee, you have the authority to manage the Trust assets, but you must always manage them for the benefit of the trust beneficiaries. You are a fiduciary, which means that you have a legal duty of fairness and impartiality to the beneficiaries and need to act in their best interests. The trust assets do not belong to you, you cannot use them for yourself or your own family members, or co-mingle them with your own assets. You are a caretaker of the property, keeping it safe while you fulfill the obligations of the decedent. You serve the beneficiaries, they are not beholden to you. Beneficiaries are generally entitled to reasonable information about the administration and to know how you handled every asset. It’s a good idea to promptly respond to questions and communicate to beneficiaries regularly.
Keep Accurate Records
You should keep records of all receipts and expenses of the trust. You may be required to provide an accounting to beneficiaries, a creditor, or the court if something goes wrong. Keeping accurate records from the outset (including receipts) makes this task much easier. An accounting should show the property you started out with (inventory), all property you received (receipts) and all disbursements (expenses paid, distributions). Each entry should list the date of the receipt or disbursement, the source if it’s a receipt or payee if it’s a disbursement, a description, and the amount.
Value Your Work
One of the trustees’ rules is in your favor: Trustees can be reimbursed from the trust for out-of-pocket expenses relating to the trust administration. A trustee also usually can get paid. Arizona law does not say how much a trustee should be paid other than the compensation must be “reasonable.”
You should disclose the fact that you are taking a fee and the method (hourly, percentage) to the beneficiaries. Again, records can become important. Keep every receipt for reimbursements and a log of time spent working on the trust administration. Note: Compensation is taxable income to you.
Do you have any alternatives? Yes!
Serving as trustee is a job, and not everyone wants it. If you are in a position to serve, be honest with yourself about your abilities, your time and energy, and your relationship with the beneficiaries before you accept the position. You may be grieving or busy or can’t stand dealing with your stepchildren who are the beneficiaries. You can decline. Even after you start, you may become overwhelmed and stressed. You can always resign. You also can hire a professional (like Fleming & Curti, PLC) at any time to guide you or, in some cases, to serve in your place.
What’s more, every person who has a trust should think carefully about their choice of trustee. What is the dynamic that is likely to play out once you are no longer in charge? Consider whether a neutral, third-party trustee might be a good fit. Engaging a professional will cost some fees, but family peace (and no jail time) may be worth it.
These tips are based on Arizona law. We are Arizona lawyers, and that’s what we know. Will your trust be governed by the trustee’s rules of Arizona? Perhaps not — but the general principles apply to nearly every trustee. Talk with an experienced attorney in your jurisdiction for more direction.
