WHAT IT MEANS TO BE A TRUSTEE: A GUIDE FOR THOSE SEARCHING FOR THE RIGHT FIDUCIARY FORT WORTH ▪ DALLAS ▪ HOUSTON ▪ AUSTIN 777 MAIN STREET, SUITE 700, FORT WORTH, TEXAS 76102 www.theblumfirm.com 817.334.0066 THE BLUM FIRM, P.C. THE RIGHT FIDUCIARY TABLE OF CONTENTS Page WHAT IT MEANS TO BE A TRUSTEE: A GUIDE FOR THOSE SEARCHING FOR THE RIGHT FIDUCIARY ................................................................................................ 1 FOREWORD ................................................................................................................................. 1 GENERAL STATEMENT ............................................................................................................ 1 GENERAL DUTIES OF A TRUSTEE ......................................................................................... 2 POWERS OF A TRUSTEE ........................................................................................................... 5 INVESTING TRUST ASSETS ..................................................................................................... 5 DISTRIBUTING TRUST ASSETS .............................................................................................. 6 RECORDS AND ACCOUNTINGS .............................................................................................. 8 COMPLIANCE WITH TAX LAWS ............................................................................................. 9 COMPLIANCE WITH OTHER GOVERNMENT REGULATION .......................................... 10 A TRUSTEE’S CHOICE, USE AND COMPENSATION OF ADVISORS AND SERVICE PROVIDERS .................................................................................................. 11 A TRUSTEE’S COMPENSATION AND LIABILITY .............................................................. 12 RESIGNATION ........................................................................................................................... 13 CHOOSING TRUSTEES ............................................................................................................ 14 APPENDIX A TYPES, PURPOSES AND PROVISIONS OF TRUSTS ................................... 17 APPENDIX B A LIST OF TRUSTEES’ TYPICAL RECORDS ............................................... 19 i THE BLUM FIRM, P.C. THE RIGHT FIDUCIARY WHAT IT MEANS TO BE A TRUSTEE: A GUIDE FOR THOSE SEARCHING FOR THE RIGHT FIDUCIARY FOREWORD1 GENERAL STATEMENT This Guide has been provided to you While there are many types of trusts, and because you are interested in what it means trusts are used to accomplish a wide variety to be a trustee. Perhaps you are considering of objectives, as exemplified in Appendix A naming a trustee for your family, or perhaps here, the essence of a trust is a legally someone has suggested that you serve as a binding arrangement under which a person, trustee yourself. as “grantor”2 appoints another person, as trustee, to hold property in a fiduciary3 Reading the text will not equip you to be relationship for a third person, the a trustee, but, instead should convey an beneficiary. appreciation of what it means to be a trustee. For those considering accepting a That is the essential structure, but trusteeship, the goal is not to encourage or frequently the arrangement may be for discourage but rather to insure that any such multiple beneficiaries, and sometimes in decision is made with sufficient information multiple trustees, and occasionally multiple to understand the basic ramifications. grantors. The obligations of a trustee are defined by law and by the trust instrument, This Guide is intended to provide you which may be the Will of someone who has with a general background of what it means died, or an agreement or other lifetime to be a Trustee, and is not intended to serve document, and which spells out the uses to as legal advice. Further, the fact that you which the property is to be applied. have been provided this Guide does not Appointing someone to be trustee implies a establish that you are a client of The Blum confidence in that person and an expectation Firm, P.C. If you have any questions that he or she will apply the property regarding this Guide, please contact any of faithfully and according to the grantor’s the Trusts and Estates attorneys who may be objectives for the benefit of the beneficiaries identified by search of the Firm’s website at and not for the personal benefit of the www.theblumfirm.com or your attorney for trustee. further information. 2 The authors have used the term, “grantor” throughout, to refer to the person creating a trust. “Grantor” is the relevant term used in the U.S. Internal Revenue Code. The terms “settlor,” “donor,” and “trustor” are synonymous with 1 This Guide has been adapted by The Blum Firm, “Grantor.” P.C. from a Guide prepared by the Fiduciary Matters 3 “Fiduciary” is both a noun and an adjective, Subcommittee of the American College of Trust and signifying a relationship of mutual reliance and Estate Counsel Practice Committee. faithfulness. 1 THE BLUM FIRM, P.C. THE RIGHT FIDUCIARY The administration of a trust is governed instrument might state that the trustee is to primarily by state laws, although Federal tax hold and invest the assets, to pay net income laws and other regulatory provisions also are to beneficiary #1 for life and then to part of the picture. State trust laws differ distribute the remainder to beneficiary #2. from state to state, so the discussion in this Beyond that, certain duties are imposed on Guide will necessarily be general in nature. trustees by state law. The emphasis on a The required amount of court involvement particular duty may depend on the purpose in the administration, for example, can vary for which the trust was created. In the rest widely and may determine how burdensome of this section are general descriptions of the job of trustee can be. For a more basic categories of a trustee’s typical duties, detailed description of the duties of a trustee, prescribed by the usual trust instrument and you should consult your attorney who governing law. specializes in trust law. Duty to Administer Trust by Its We will begin with an overview of a Terms. The trustee is obligated to trustee’s duties, some of which may be administer the trust strictly by its terms. The specified in the governing instrument and trustee must be guided in all acts by the trust some of which may be explicit or implicit in instrument, including any amendments, and, applicable state and federal law. To perform unless there is an absence of direction or those duties, trustees are given powers, and ambiguity, must be limited by the intent some of those as well are specified in the apparent from the face of the trust governing instrument while others are instrument. Therefore, it is critical that the explicit or implicit in applicable state or trustee read and understand the entire trust federal law. Following overviews of those instrument. To the extent the trustee needs subjects, this Guide will offer practical and guidance in interpreting the terms of the administrative points to consider when trust, he or she should seek advice from a addressing what it means to be a trustee and qualified attorney. points to think of in choosing a trustee or deciding whether to become a trustee. Duty of Skill and Care. The laws of most states require that a trustee administer GENERAL DUTIES OF A the trust with the care, skill, prudence, and TRUSTEE diligence that a person familiar with the job of serving as a trustee would use in the A trustee stands in a special relationship conduct of the trusts’ activities to of fiduciary responsibility to the grantor of accomplish the purposes of the trust. Thus, the trust and to the beneficiaries. In carrying even if a trustee has never previously served out his or her fiduciary duties, the trustee in such a capacity, he or she will be held to a must be mindful of that unique relationship. high standard of performance. The starting point is the trustee instrument and its specification of what the trustee is to Duty to Give Notices. The trustee must do to accomplish the purposes for which the read the trust provisions carefully to trust has been established. For example in determine the circumstances in which he or the case of the simplest trust disposition, the she is required to give notice to 2 THE BLUM FIRM, P.C. THE RIGHT FIDUCIARY beneficiaries, co-trustees, and successor vary from state to state, and may depend on trustees. For example, trusts typically the value of the trust and the number and require notice of a trustee wishes to resign, sophistication of the beneficiaries. delegate powers to another trustee, or Generally, the trustee is required to provide designate a successor trustee. Some trusts an accounting to each beneficiary to whom give beneficiaries rights of withdrawal out income or principal is required or authorized of new contributions to the trust, or upon in the trustee’s discretion to be currently attaining a particular age, and the trustee distributed. It may also be appropriate to must be careful to give notices to the furnish remainder beneficiaries4 with an beneficiaries of their withdrawal rights in accounting. those situations. In trusts which authorize the trustee to name a professional Duty Not to Delegate. Generally, the investment advisor, there is often a trustee has a duty not to delegate to others requirement that the beneficiaries be given the performance of any acts the trustee can written notice of such action. Similarly, reasonably