Talking to a Lawyer : Chapter 28 - Trustees

What Trustees Do

Q. I'm confused about what trustees do. Is there anything like a job description?

A. If you establish a living trust, you can be your own trustee. You could then appoint disability trustees in the event of disability and death trustees who will serve upon your death. Your trustees will handle your financial matters in accordance with the instructions set out in your trust. With a living trust, think of three potential circumstances. First, you are alive and well. Second, you are no longer able to take care of your financial affairs. This is known as disability planning. Third, you have passed away.

Think of everything that you do to manage your financial affairs. Your trustees are your financial managers and will be responsible for doing all that you do to protect your financial interests.

Answer by Lena Barnett, Attorney at Law, Silver Spring , Maryland

Who Should Be the Trustee(s)?

Q. In general, what should be the balance between family member trustees and professional trustees?

A. Some clients choose a combination of family members and professional trustees. This way the family members know the personal side of the beneficiaries while the professional trustees are aware the legal, financial, and technical sides of serving as trustee. These days a professional trustee can be an institutional trustee or it may be a CPA or an attorney.

Other clients work this combination in a different fashion. They may have family members selected as trustee with instructions that such family members must seek professional assistance.

Sometimes the trust specifies that a beneficiary such as a particular family member serve as one of the trustees, but that his/her role be limited to certain tasks such as investment decisions and selecting the professional trustee from a somewhat restricted group noted in the trust.

In all cases, it is important to have a line of back up trustees. Suppose a trustee dies, resigns, or goes out of business.

Also, if a trustee, professional or otherwise, is not performing, the beneficiaries can remove a bad trustee but must replace the trustee with someone or an institution that is listed in the trust or that meets certain requirements that have been spelled out in the trust

Answer by Lena Barnett, Attorney at Law, Silver Spring , Maryland

Wrapping Up a Living Trust

Q. I'm the trustee for my brother's living trust. Can I distribute assets immediately to the beneficiaries, or do I have to wait?

A. That depends upon the terms of the trust. A well-drafted trust should provide you with specific guidelines for making distributions to the beneficiaries. If you became the trustee as the result of your brother's death, the trust may provide that you are to distribute the assets within a reasonable period after his death. But before you do so, you should be certain that all debts and taxes have been paid. The trust may provide that it is responsible for your brother's death taxes; if so, you should not make any distribution until his estate has received "closing letters" from the IRS and state tax authorities verifying that all taxes have been accounted for. If you distribute the trust to the beneficiaries before all the taxes have been paid, you could end up being responsible for those taxes out of your own pocket.

Answer by Harold Pskowski, BNA Tax Management, Washington DC