Trustees and Successor Trustees

Transcription

1 Trustees and Successor Trustees At least one initial trustee must be named. Multiple trustees may be named. If multiple co-trustees are named, include a provision explaining whether unanimous consent or majority consent is necessary to act on behalf of the trust. Alternatively, a trust can stipulate that any trustee can act on behalf of the trust. The default rule is that majority of trustees can act on behalf of the trust. Though for some types of transactions, banks or similar firms may require the signature of all trustees. Successor Trustee(s) should also be named in the event that the initial trustee(s) cannot serve. Backups to the successor trustees may also be named, etc.

2 Professional Trustees Many banks and/or trust companies will serve as trustee for a fee. Advantages: Professional management of the assets Avoid disputes that may arise if family members are trustees Disadvantages: Can be very costly May be less flexible in making distributions May be less flexible in bending the trust s rules to adjust to the client s estate plan

3 Trustees who are also Beneficiaries The sole trustee cannot also be the sole beneficiary. Otherwise, the interests merge and the trust is extinguished If the trustee has the authority to give assets to himself without another person s consent and is not limited to an ascertainable standard, this is a general power of appointment And it s in the trustee s estate, reachable by the trustee s creditors, etc. Even without a GPOA, it s often a good idea to check the trustee s authority to: Avoid conflict Avoid allowing the assets to be available to the trustee for government benefits or creditor purposes

4 Trust Protector/ Advisor This is a separate person who may have certain powers over the trustees or trusteeship. They can: Resolve disputes Ensure that trust assets are not wasted Advise on investment of trust assets Common trust protector powers include: Power to remove and replace a trustee Power to approve or deny certain distributions Power to consult before certain investments are made Be careful not to allow the trust protector to simply appoint anyone as trustee and make unlimited distributions--or the trust protector may have a general power of appointment over the trust assets!

5 Trustee Powers and Duties Can be established or limited by the trust instrument Common default powers (under state law) include: Mangage and invest trust assets Buy and sell trust assets Sue and defend lawsuits for the trust Duties of the trustee include: Administer the trust in good faith Duties of loyalty and care to the beneficiaries Adequate record keeping and tax filings Keep the beneficiaries informed of developments

6 Trustee Fees The trust document can determine what fees (if any) the trustee is entitled to. Default rules are typically established by state statute. They include: A fee for trust assets that are distributed A percentage of the distribution A yearly fee for assets held in the trust A percentage of the value of the trust Trustee fees are an estate or income tax deduction for the trust. But they are taxable income to the trustees

7 Common Provisions to Protect the Trustee Allowing the trustee to name additional trustees or to delegate trustee authority to a third person Waiver of bond requirement Negating the requirement of a court order to act on behalf of the trust Most relevant in the case of a testamentary trust Negating the yearly accounting requirement This cannot be done in some cases, such as in some supplemental needs trusts Allowing speculative investments Allowing interested transactions as long as they are fair to the trust No liability for handling trust assets in the absence of bad faith

8 Other Common Clauses Choice of law and forum Especially important where the trust has assets in multiple states Severability Perpetuities Savings Clause A surprising number of trusts violate the Rule Against Perpetuities without intending to Allowing the trustee (or another party) to make technical corrections if necessary Otherwise, amending an irrevocable trust is not allowed