Who’s Who in a Trust?
In my previous article, “Who’s Who in a Probate” I covered the roles of an Administrator, an Executor, a Personal Representative (PR). I talked a little bit about Full Authority and Limited Authority and even discussed Bonds. I defined, in my own words, what a Fiduciary should be and wrapped the article up promising to talk a little bit about Trusts. I also gave a pretty detailed disclaimer which is incorporated here for the benefit of this article. If you haven’t read it, please go back and check it out now.
A Trust
A Trust is similar to an estate (the passing of assets with a will) in that there is a PR or Fiduciary that heads the team. In this case the Fiduciary is now referred to as the ‘Trustee’. Unlike an Estate where the assets are transferred with a Will, a Trust is a third party entity that survives the originator of the estate (referred to as the ‘Grantor’) and continues after the passing, without missing a beat.
The Trustee – whether the Grantor or the new PR (referred to as the ‘Settlor’) after the passing of the originator– is charged with investing the assets of the trust and balancing the desires of the Grantor with the needs of the ‘Beneficiary’. The Beneficiary is the person(s) or other organization(s) entitled to receive the income from the Trust’s assets. In addition to balancing the needs of the Beneficiary, the Settlor must take into consideration the wants of the ‘Remainderman’ which are then the people or other organizations that receive the balance of the trust’s assets after the affairs of the Trust are settled and the trust period ends.
Many Trusts can be complicated and because human nature is what it is, it is not uncommon for the Grantor to designate two or more Trustees’ to work together. Some Trusts will assign General Powers to all Trustees’ while others will define very specific areas of responsibility with specific powers.
Trustees are differentiated as either ‘Family’ or ‘Independent’.
Independent Trustee
Independent Trustees can often be a very important element to the execution of a trust. By definition, they have nothing to gain (other than their fee). They are not named in the Trust as the Grantor, Beneficiary or Remainderman. An Independent Trustee owes their allegiance to the Grantor, who is relying on them to make decisions that best serve the interest of the trust rather than that of any Beneficiary or Remainderman.
An Independent Trustee may be a trusted friend or sometimes they are banks, trust companies, lawyers (or law firms), accountants (or accounting firms) and even a REALTOR like me can be identified for the sale of real estate.
A common role of an Independent Trustee, at the direction of the Grantor, will be discretionary distributions to beneficiaries – especially if one of the Beneficiaries is also a Trustee. This just keeps it clean and removes any semblance of self-serving from a trustee who also has a beneficial or remainder interest in the Trust.
Assuming the role of an Independent Trustee is a very sensitive role with serious responsibilities and one that is not taken lightly. Unless a close friend is willing to act in this role out of the goodness of their heart, be prepared to pay for these services. Attorneys and Accountants will typically bill the estate, just as they would for other professional services. Banks and other institutions will typically be in control of the assets and be able to automatically withdraw their fees.
Fees can either be billed hourly or more commonly based on a percentage of the estate.
Family Trustees
Family Trustees are often an integral part of the estate plan. They have many of the same powers and responsibilities as Independent Trustees with the exception of being able to authorize discretionary distributions to beneficiaries – especially if they have a vested interest in the estate as either a Beneficiary or Remainderman.
While Family Trustees are important to the Grantor, they can often get messy with the other Beneficiaries and Remainderman. We have all seen movies and television shows that focus on the drama of feuding heirs. There is nothing worse for a family to dissolve because they are fighting over a deceased loved ones money.
A well thought out and planned exit strategy from life can be the real blessing and legacy one leaves behind when we ultimately pass. In my opinion, a Trustee should not necessarily be considered because of a certain place in the family pecking order, but rather a person who knows and understands the personalities of the other heirs well and has no difficulty to make any decision based on the grantor’s wishes.
In the next article in this series, I’ll begin to look at what other professionals you may need to assemble as part of your team. Realize as an executor of an estate that you can do it all yourself . . . just like every other aspect of law in America. Yet without experience or training, this can be a daunting task.
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