Tuesday, 25 June 2024

Estate planning: How trust advisors assist trustees

The duties of a trustee carry great responsibility. In the case of family trusts managed by nonprofessional trustees, these duties involve responsibilities that are most often beyond the trustee’s expertise and experience.

Such trustees find themselves in a dilemma because they must actively administer the trust, but do not possess the expertise to do so without assistance. How then can a nonprofessional trustee – who was selected because of his or her familial relationship and position of trust – competently manage the assets and affairs of the trust? Let’s examine the trustee’s options.

Investments and management functions are important areas that require special competence not usually possessed by a family trustee.

Fortunately, a trustee may delegate these investment and management functions when it is prudent to do so under the circumstances. Such prudence requires that the trustee exercise care in selecting the investment advisor, establish the scope and terms of the advisor’s engagement, and periodically review the advisor’s performance and compliance with the terms of his or her engagement.

Prudently delegating such responsibilities protects the trustee from liability for the investment and management of trust assets so long as the trustee periodically oversees the actions of the trust advisor.

Should the trustee, in his or her periodic reviews of the trust advisor, discover any wrongdoings committed by the advisor, the trustee is personally responsible to make the advisor rectify the situation.

Failure by the trustee to act prudently, or active concealment by the trustee of any wrongdoings committed by the advisor, will make the trustee personally liable to the beneficiaries for any damages.

Except in the case of investments and management, a trustee may not delegate discretionary decision-making to a non trustee.

A trustee is selected because of the trustee’s personal judgment and so must use that judgment independently. For example, the trustee is responsible for deciding when and how to make discretionary distributions to, and on behalf of, the beneficiaries.

A trustee may, of course, consult with trust advisors in any and all areas that require or would benefit from professional expertise, such as in the areas of law, accounting, and taxes. Whenever a trustee consults an expert – but does not delegate responsibility to the expert – the trustee must still make his or her own decisions regarding the issues confronted.

Unlike a trustee who prudently delegates, a trustee who consults is personally responsible for making decisions and taking actions. Any time the trustee acts based on the recommendations of hired advisors, the trustee should keep records of the advisor’s recommendations, the trustee’s decisions (together with reasoning) and the trustee’s action.

A trustee may also hire agents to carry out so-called ministerial (day-to-day) activities that do not require any particular expertise or discretion. Such ministerial actions would be routine tasks that can be undertaken by an agent acting under the direction of the trustee.

The trustee is responsible for prudent selection of the agent, periodic oversight, and correcting any errors made by the agent. A trustee who acts prudently (as described) will not be liable to the beneficiaries for the agent’s own wrongdoing.

To conclude, any person entrusted with the duties of trustee is expected, and indeed should be encouraged, to utilize professional advisors.

Trustees may also hire agents, when necessary, to complete the day to day ministerial activities that do not require the trustee’s personal judgment.

Dennis A. Fordham, attorney (LL.M. tax studies), is a State Bar Certified Specialist in Estate Planning, Probate and Trust Law. His office is at 55 1st St., Lakeport, California. Dennis can be reached by e-mail at This email address is being protected from spambots. You need JavaScript enabled to view it. or by phone at 707-263-3235.

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