Planning for Life

8 Dos and 2 Don'ts for Serving as Trustee

Posted by Harry S. Margolis on July 2, 2019

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By Harry S. Margolis

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Whether it's an honor or a burden (or both), if you've been appointed to serve as trustee of a trust, here are 10 dos and don'ts to follow to make sure you don't trip over any hurdles:

  1. Do read the trust document. It sets out the ground rules under which you will operate. So you need to understand them completely.
  2. Do set up a checking account for the trust. All income and expenses should go through this account. While you can and should invest the money, a checking account will enable to to make and track distributions and payments.
  3. Do keep the best interest of the beneficiary or beneficiaries in mind at all times. You have what's called a "fiduciary" duty to them, which is an extremely high standard.
  4. Don't have any personal financial dealings with the trust. For instance, you cannot borrow money from the trust or lend trust money to anyone else with whom you are connected in any way.
  5. Do provide the beneficiaries and anyone else indicated in the trust with an annual account of trust activity. This can be as simple as copies of checking and investment account statements or a more formal trust account prepared by an accountant or attorney.
  6. Do invest the trust funds prudently and productively. You cannot simply leave the trust funds in a savings account. And you can't put them all into a promising new business (or cryptocurrency). You need to diversify the trust portfolio among stocks and fixed-income securities. It is wise to get professional advice.
  7. Do keep in regular contact with the beneficiaries to understand their needs.
  8. Do be aware of any public benefits the beneficiaries may be receiving and make sure you do not jeopardize their continuing eligibility.
  9. Do file annual income tax returns for the trust. (This is not necessary in the case of revocable trusts when the trust grantor serves as trustee. In that case, the trust simply uses the grantor's Social Security number.)
  10. Don't fly solo. Get professional advice to make sure you are correctly fulfilling your duties as trustee.

If you follow these 10 guidelines, you can be assured that you will be protected from any legal liability for serving as trustee. Beneficiaries can always challenge your decisions, but courts almost always defer to the judgement of trustees if the trustees can show that they have seriously fulfilled their responsibilities. It's when they can't demonstrate they have taken these steps that they risk getting into trouble.

Topics: trustee

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