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Best practices for trustees who rely on others to assist with the administration?

This guide is being provided to you by the attorneys with the Law Office of Bryan Fagan as means to show any reader who is serving as a trustee how to handle that responsibility. Whether or not you choose to accept the responsibility of acting as a trustee is up to you and your skillset, time, and competence. Make no mistake, it is a responsibility that should not be taken lightly. As a result, we hope that you will rely upon this guide to help you prepare to decide or to act competently as a trustee if you have already accepted this role.

Whether you are in a position where you have been named as a trustee or you are trying to figure out who to name as a trustee for your family trust, this guide should be able to provide you with the basics as far as how the trustee should act as a fiduciary first and foremost. A fiduciary is a person who puts the interests of others ahead of their self-interests. This guide should not be the only source of information that you take in when preparing to act as trustee. Rather, it should be a place where you can establish a baseline level of knowledge and can move on from there.

Of course, we can only write about this subject on a general level. If you have specific questions about the material that you are about to read or questions about your circumstances, please do not hesitate to contact theLaw Office of Bryan Fagan. We have experienced estate planning attorneys who can answer your questions in a free-of-charge consultation. If you believe that you need assistance with any estate planning, end-of-life planning, or probate matter we would be honored to serve you and your family. Please reach out to us to learn more about our law practice and how we may best be able to work with you to further whatever goals you may have at this time.

Trusts- what do you need to know on a basic level?

Trusts are a diverse type of estate planning vehicle. Many different types of trusts exist in Texas, and they can accomplish a wide range of goals for the person who sets up the trust. However, what you need to know is that a trust is a set-up where a grantor whose property makes up the trust’s contents will appoint a trustee to administer the trust as a fiduciary on behalf of the persons who stand to benefit from the trust, called the beneficiaries. The obligations of a trustee are defined by law in Texas as well as by the terms of the individual trust that the trustee agrees to serve. If you are appointing someone as a trustee or have been appointed as a trustee then it is due to a high degree of confidence in that person or you, whatever the case may be. The grantor’s goals and objectives must be followed no matter the personal beliefs or opinions of the trustee. That is what we mean when we say that a trustee must act as a fiduciary.

When it comes to administering a trust, you must follow state laws to do so. Let’s walk through some of the duties of a trustee so that you can be brought up to speed as to what will be asked of you or what you will be asking of another person. A trustee is given powers both under the law and under the terms of the trust. We want you as a trustee or as a person who will be naming a trustee to be confident in knowing what it means to serve as a trustee and what it means to accept the responsibility. As a trustee, you would be placed in between the grantor of the trust (the person who creates the trust) and the beneficiaries of the trust (the person(s) who are named within the trust as potential recipients of the property). You will first need to look at the terms of the trust and determine what you need to do to accomplish whatever purpose that the trust was created for in the first place.

Let’s take an example to illustrate this point. In a made-up world, let’s say that you were named as a trustee of a very simple trust. In that document, it states that you as the trustee must hold onto the assets of the trust and invest the assets so that the income generated off those assets can be paid to one beneficiary for their entire life and then distribute whatever money is left to a second beneficiary once the first beneficiary has passed away. Aside from the stated purpose(s) of a trust, there are other, general responsibilities that a trustee must embody and uphold while fulfilling their obligation.

You must agree to administer the trust by its terms. In all your efforts and all your actions as a trustee, you must look to the document itself to inform you of how you should be acting. To know how to act in this regard you should read the entire trust document including any amendments or additional documents that have been added to the original trust since its creation. When you have any questions about how to proceed you should contact an experienced trust attorney such as those with the Law Office of Bryan Fagan. Any failure on your part as trustee to administer the trust in line with its terms can be construed against you by the beneficiaries as well as by the guarantor. This means legal issues for you.

Under Texas law, you must also be able to administer the trust with a certain level of care, skill, prudence, and diligence that a person who is familiar with the job of acting as a trustee would use in conducting the business of a trustee. Again, all of this is done to accomplish whatever the purposes of that particular trust are. Even if you have never served as a trustee before you will not be held to a lower standard of care or competency than a veteran trustee. This means that you need to learn quickly how to conduct yourself as a trustee if you choose to accept the responsibility of the trustee.

Next, you must read the provisions of the trust with care and then figure out what the circumstances are under which you are obligated to give notice to beneficiaries. Let’s say that your trust requires that you provide notice to all beneficiaries if you wish to resign from your role as trustee. At other times you may be obligated to notify beneficiaries if you change an investment, a brokerage firm that handles the investments, or for any other reason listed in the trust language that requires you to give notice.

Related to the duty to give notice is the duty to furnish information and to communicate with beneficiaries. You must keep the beneficiaries of the trust informed regarding the trust and how it is being administered. What the assets of the trust are, the performance of the various investments, and any other information that you believe is relevant to each, the individual beneficiary should also be disclosed to that person or entity. If the beneficiary makes a request of you for information, then you need to do everything reasonable to respond to that request.

You must also, as a trustee, every so often provide the beneficiaries of the trust with a written accounting of the assets, liabilities, and disbursements of the trust. The value of the trust as well as the number of beneficiaries will determine the frequency with which you must provide an accounting.

Whatever the responsibilities of the trustee for your trust are, you must be the one to execute those duties as well as you cannot without delegating them to another person or entity. You have been selected to act as a trustee in part due to your judgment and discretion. Any important decisions that you make relative to the trust should be documented for your protection and if a beneficiary asks for your justification for deciding on some sort related to the trust. This is not to say that you cannot employ an attorney, accountant, or other professional to assist you in your duties as a trustee. By the same token, however, you cannot hand over the keys to the car to an attorney and follow their advice without giving it deep and thorough consideration.

You cannot use any trust asset for your gain or for any reason that is not connected to the trust or the beneficiaries of the trust. Even if your actions would not impact the trust at all, and would only stand to benefit you personally, you still cannot use the trust assets to do so. Any transactions that you are considering which may run contrary to this duty to avoid conflicts of interest should first be run by an attorney to make sure that you are not violating the law or the terms of the trust document. Additionally, you cannot commingle your personal property with the property of the trust. You should have separate accounts at your local bank, for example, when it comes to trust accounts and personal accounts.

The growth of the body of trust is crucial to protecting the interests of the beneficiaries- be they lifetime beneficiaries or remaindermen. Therefore, you will likely have a duty to invest in the property contained in the trust when you serve as a trustee. This means that you should have investments in diverse areas rather than putting all the eggs of the trust in one basket. Whatever specific investment directions are provided to you by the trust directives should be considered in all your investment activity. The financial needs and risk tolerance of the beneficiaries should figure into this decision.

These are just a handful of the probable duties that you must be mindful of as a trustee. You must be aware of these responsibilities. You will be held responsible for mistakes made in the execution of your responsibilities if done incorrectly or in a way that does not benefit those who are beneficiaries of the trust. Having the advice of an experienced estate planning and trusts attorney can be a huge advantage to you. It is admirable to want to serve as a trustee if called upon. However, this will not stop you from incurring liability for the decisions that you make in acting as trustee.

What powers does a trustee have?

Some rules will apply to you as a trustee as well as limits placed upon the authority that you must act. Remember that whatever powers you are given under the law and the trust are done so only to allow you to administer the trust to benefit the beneficiaries. Sometimes these laws can seem contrary to one another so, again, the advice of an experienced attorney with the Law Office of Bryan Fagan can be of great assistance to you.

If the trust document allows you to take a certain action, then you can take the action if you believe it to be necessary and appropriate regarding the trust’s beneficiaries. You should also feel confident in taking that action if permitted under Texas law even if the trust document itself is not specific as to whether it allows you to take the action in question. On the other hand, if both Texas law and the trust document are not specific as to whether you can take a certain action then you can file a petition in a probate court of your jurisdiction to receive a ruling as to whether or not you can take a certain step regarding administering the trust.

Texas law governs what type of investments are appropriate for you to make regarding the trust assets. The trust documents themselves can also increase or decrease the types of investments that you can make depending on the risk tolerance and needs of the beneficiaries. It does not matter whether a beneficiary is a remainder beneficiary or a lifetime beneficiary. The investment choices that you make as a trustee should be based upon your sense of what is right regardless of whether you are making a long-term or short-term investment.

Next, one of the most important duties that you will possess as a trustee is to be able to make good decisions when it comes to distributing property to beneficiaries under the trust. On one hand, this obligation seems obvious in that the whole purpose of a trust is to be able to distribute property upon the occurrence of certain conditions. However, it is still important in the grand scheme of things and still puts you in a position of liability if done in error. You will have the required distributions of two beneficiaries while the trust is in existence. The main problems that arise with these required distributions are if there is unclear language contained in the trust documents.

You must also, as a trustee, keep good records and provide accountings to the beneficiaries of the trust. Whether it is regarding your investment choices, the administration of assets like businesses or real estate, or tax planning you need to keep good records of the Decisions that you make as trustee.

Final thoughts on best practices for trustees

To be a successful trustee, you need to be able to show good judgment, attention to detail, care for the assets of the trust as well as a propensity to grow the assets that make up the body of the trust. Please bear in mind that this blog post is only made up of suggestions and different considerations that you may want to make as a trustee. There is no way that this guide or blog posts will be able to perfectly guide your actions as a trustee. For that, you will need specific legal advice about the trust that you are overseeing.

Combining knowledge of the Texas Property Code, the terms of your specific trust as well as an understanding of the needs of the beneficiaries of the trust are good places to begin your search for information. You should read up on the different types of trusts that exist under Texas law, the purposes of those trusts as well as the different provisions that can be contained in a trust. From there, you can operate with a great deal more confidence when it comes to acting in this capacity.

Questions about the material contained in today’s blog post? Contact the Law Office of Bryan Fagan

If you have any questions about the material contained in today’s blog post, please do not hesitate to contact the Law Office of Bryan Fagan. Our licensed trust and estate planning attorneys offer free-of-charge consultations six days a week in person, over the phone, and via video. These consultations are a great way to help you learn more about your situation when it comes to these important subjects.

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