WWW.MASSBAR.ORG VOLUME 21 | NUMBER 7 | MARCH 2014

So, you want to be a trustee? A primer for the care of your trust

portance, and interrelation, of both the available for review by “qualified ben- BY PETER M. SHAPLAND AND MPIA and Principal and Income Act eficiaries” (as defined in the MUTC) GLYNIS A. RITCHIE PETER SHAPLAND is and takes them into consideration when and government agencies. This includes In most jurisdictions, lawyers rarely, a partner in the Boston setting investment policies and making general record keeping (written records if ever, serve as trustees of the trusts es- office of Day Pitney LLP distribution decisions. Massachusetts pertaining to the financial assets of the tablished by their clients. The fiduciary (www.daypitney.com). case law also provides a rich source of trust) and records of trustee actions obligations of a trustee are broad, and it He focuses his practice trust law principles (a discussion be- (meeting minutes, letters, and memos often makes good sense to designate a on all aspects of estate yond the scope of this article). relating to trust management). With ad- bank or responsible family member to planning, settlement Once familiar with the trust docu- equate record keeping, a trustee will be serve as trustee. Since at least the late of decedents’ estates, ment and relevant laws, and upon ac- positioned to fulfill her responsibility 19th century, however, many clients in and administration of family trusts and private ceptance of the trusteeship, the real of accounting (i.e., providing annual fi- Boston and throughout New England foundations. Shapland frequently serves as work of administration begins. First, nancial reports concerning trust income have asked their estate planning law- executor and trustee for his clients and their and perhaps foremost, a trustee makes and principal) to all interested persons. yers, who know their legal and financial families and as trustee or advisor of private distributions to current beneficiaries See G.L.c. 203E, § 813. A modern trust- affairs best, to serve as trustees. Over while still preserving trust principal ee should provide regular and complete the years, those responsibilities have foundations with a broad variety of charitable for future beneficiaries. When making reports to beneficiaries, since failure to helped sustain the practices of lawyers planned-giving objectives. He is an active member distributions, a trustee must respect the communicate adequately may be a vio- in small and large firms alike, many of both the Massachusetts Bar Association express provisions of the trust, which lation of duties contained in the trust of them with established trust depart- (Probate Section; current member of the Governing range from an “ascertainable standard” instrument (and the MUTC) and may ments. Now, as the legal profession Council) and the Boston Bar Association (Trusts to broad discretion. Whatever the case result in feelings of mistrust, even if un- evolves and lawyers develop new skills, and Estates Section). He is past co-chair of the may be, a trustee making distributions warranted. Id. more practitioners are considering tak- Boston Bar Association Trusts and Estates Section should keep in mind the current and ing on active trusteeships. This article and currently serves as co-chair of the Public future financial needs of current benefi- provides a brief overview of some of the Policy Committee. Shapland is also a member of ciaries, while remembering the interests Tax Considerations more significant obligations of a trustee the Boston Probate & Estate Planning Forum. of future beneficiaries (involving the A trustee must also ensure compli- of a private trust, including making dis- GLYNIS RITCHIE is an duty of impartiality). ance with tax reporting and payment tributions, asset custody and investment associate in the Individual obligations. In general, every irrevo- management, record keeping, and legal Asset Custody cable trust is a “taxpayer,” requiring and tax compliance. Clients Department of the Boston office of Day and Investment trustees to file annual federal and state income tax returns. See Federal Form Pitney LLP. Her practice Management 1041; Massachusetts Form 2. The trust- focuses on estate planning Ensuring that trust property is pre- Duties and ee may also be responsible for the pay- served for current and future benefi- Distributions and probate litigation, ment of federal and state income taxes. ciaries is a key fiduciary responsibility. The duties and powers of a trustee with a special focus on Applicable income tax rules are com- Avoidable loss in asset value may be the are defined by relevant state and federal planning for families with children with disabilities plicated and differ in important respects most significant liability risk faced by law, and by the terms, both expressed and other special needs. from the rules that apply to individuals, a trustee. Assets must be invested in a and implied, of the governing trust in- so a cautious trustee will consult regu- “prudent” manner, so a cautious trustee strument. The trustee’s core obligation larly with his or her tax professional, ties include, but are not limited to: (1) will develop a written trust investment is to administer the trust for the benefit preferably before the trust is funded. duties of skill, care, and loyalty (see id. policy and will review that policy at of the beneficiaries in accordance with A trustee must also always understand, at §§ 802, 804, 806)); (2) duty to furnish least every year. While a trustee should the settlor’s intent. The trust instrument and plan for, the gift, estate and genera- information to, and communicate with, not ignore the essential responsibility provides the “rules of the road” with re- tion skipping transfer tax consequences beneficiaries (id. at § 813); (3) duty to to determine the basic asset allocation spect to how it should be administered, of particular trusts. avoid conflicts of interest (id. at § 802); targets of a trust (i.e., between equity including identifying beneficiaries, es- As this article, which provides only (4) duty to segregate property (id. at § and fixed income investments), both the tablishing distribution standards, and a glimpse into trustee obligations, dem- 810); (5) duty of impartiality regarding MUTC and the MPIA permit trustees outlining both reporting obligations and onstrates, serving as a trustee is an area current and future beneficiaries (id. at § to “delegate” investment responsibili- the scope of permissible investments. in which a lawyer should not practice 803); and (6) duty to enforce and defend ties to other professionals to make in- Generally, if the trust instrument con- without sufficient research, support and claims of the trust (id. at § 811). vestment decisions. See G.L.c. 203E, templates a particular action, it may be preparation. Most trusts are established In addition to the MUTC, a trustee § 807; G.L.c. 203C, § 10. If an invest- undertaken if the trustee determines it is for families, and all families, at some must understand the Massachusetts Pru- ment advisor is selected and monitored in the best interest of the beneficiaries point, struggle with internal conflict. A dent Investor Act (MPIA), G.L.c. 203C, with care, delegation of these tasks can and does not violate public policy. trustee who puts her fiduciary obliga- which addresses fiduciary investment greatly reduce the trustee’s personal In addition to the terms of the trust, tions first may not always be popular authority as it concerns the investment risk for liabilities associated with loss- the parameters of a trustee’s powers with all beneficiaries, but she will fulfill performance of the trust portfolio as a es. Id. Importantly, a lawyer should not are defined by a large body of trust and the role expected of her under the trust whole. Broadly stated, the MPIA per- provide specific investment advice (or tax law. Any potential trustee should and applicable law. Serving as a trust- mits a trustee to invest assets under the advertise investment services) unless familiarize herself with the Massachu- ee is a long-term commitment. With “modern investment portfolio,” or “to- she is a Registered Investment Advisor setts Uniform Trust Code (MUTC), the right lawyer in place, trust settlors tal return” theories, an important evolu- under applicable federal and state secu- which provides the framework and and beneficiaries will have someone tion from prior standards. Equally im- rities laws. E.g., G.L.c. 110A, § 201. “default rules” within which Massa- objectively dealing with difficult fam- portant is the Massachusetts Principal chusetts trusts should be administered. ily scenarios, addressing complex legal and Income Act, G.L.c. 203D, which See Mass. Gen. L. ch. 203E (2012). and tax issues, supervising investments establishes, in part, duties relating to Record Keeping and The MUTC also outlines avenues to the wisely, and handling record keeping for determining appropriate distributions of Communications court, if and when judicial intervention many years to come. It’s tricky work, trust property to current beneficiaries. A A trustee must maintain complete is appropriate, and it establishes certain but nothing we can’t be entrusted to successful trustee understands the im- and accurate records and make them duties that cannot be avoided. These du- do. ■