Being named as a trustee is for most people equivalent to receiving a death sentence. Don’t freak out (yet)! In this blog we will talk about what it means and how to manage being in this role, if you elect to accept it.
But before we get into the blog…
We are financial advisors in Morristown, NJ, providing financial advice for New Jersey residents as well as folks across the country. As we get started, you may want to check out these financial planning blogs we’ve written:
How to get through probate (without draining your bank account)
Filing your tax return: traps to avoid
Do I have to pay taxes on an inherited annuity?
Let’s go!
What is a trustee?
Let’s start on square one. What is a trustee?
A trustee is someone named to administer the assets in a trust on behalf of a third party. That person may be deceased, or may be alive and unable to manage the assets themselves (due to cognitive decline, disability, etc.).
A trustee is performing the role of a fiduciary, meaning that they are legally bound to manage the assets held in trust for the long-term best interest of the beneficiary under the highest standard of care. This may entail duties such as maintenance of real estate properties, fine art, or making investment decisions related to any securities (stocks, bonds, etc.) held in investment accounts.
“Whoa!” you may say, “I’m not equipped to manage any assets!”
Don’t panic! If you are not able to manage the trust assets with prudence and care, you simply appoint someone who is able to do so. A professional investment manager is equipped for this role. Third-party money managers can be paid from the assets in the trust.
In addition to managing the assets, you are responsible for other tasks such as ensuring that the trust documents are followed, and that instructions are followed regarding how the assets are to be distributed.
Let’s take a hypothetical scenario as example. Let’s suppose the trust document says that the trustee must make decisions about where the beneficiary, an autistic 25 year old, should live. You would then be tasked with evaluating group homes or other housing options to identify the most suitable arrangement. As with the management of assets, if you are unable to perform this duty properly, you’d be expected to appoint a third party to do so.
To summarize, the responsibilities of being named a trustee are:
- Manage the trust in accordance with the fiduciary standard and trust law
- Pay taxes on the assets in the trust, as well as any associated fees, when they are due
- Execute the instructions for distributing assets to beneficiaries
- Follow the trust documents and comply with any instructions given in them
- Outsource any functions you are not equipped to handle on your own
- Keeping records of all financial and legal matters pertaining to the administration of the trust
Ehem…will I get paid?
Yes, if you have been named a trustee and you accept the role, you are paid for your time.
How much do you earn?
The amount you’ll be paid should be specified in the trust documents. You can be paid a percentage of the assets, or a flat fee depending upon the complexity of the job tasks you are required to carry out. Each state’s laws govern how high the fees can go.
Do I HAVE to do this?
No.
Being a named trustee is a responsibility you choose to accept or deny.
It’s useful to consider your bandwidth, your capabilities, and the innate knowledge you are bringing to the situation. If you aren’t up for it, it may be a good idea to decline. You are held responsible legally for any actions taken or not taken; there are risks and liabilities involved with being a trustee. You may face financial penalties and even legal recourse for errors. If you are lacking the motivation and knowledge to perform up to par, and have no inclination to acquire these necessary support resources, this role is not for you.
If you would enjoy or would not mind acting in this role, or feel that nobody else could do it better than you and want to make sure it’s done right, it may make sense. If you have the time to commit, you will be compensated for your work. And, you will have the privilege of acting out your loved one’s final wishes.
The bottom line is this.
Acting as trustee is a serious responsibility and legal parameters apply. You are being called to serve the beneficiaries and the decedent by ensuring that their wishes are honored. However, if the responsibility is too much of an emotional or time commitment, it may be better to step aside and allow the court to pinpoint a suitable replacement.
Still unsure? Consult with a financial advisor or estate attorney for help with this decision.
How are you going to invest the inheritance?
We are financial advisors in Morristown, NJ serving the local community and beyond. If you have questions about how to invest or manage an inheritance you are receiving in New Jersey or elsewhere, or (like us) are just plain old Bruce Springsteen fans, reach out and send us a message.
And by the way – we are writing a series on estate planning and its impact on retirement. If this is of interest, please subscribe to our newsletter to be notified when new blogs are published.