By Jason Domark
At the time of writing, reports show coronavirus cases have topped 216,000 in the U.S. and are nearing 1 million worldwide. The highest percentage of those worst affected are seniors. Many patients require hospitalization and life-saving ventilators, which are in short supply.
With these numbers, many people may have to step-up as trustees for the first time. Seniors are more likely to have estate plans with trust structures already in place. The sheer number of people likely to become incapacitated, even temporarily, will also create many new trustees.
There is a lot to know and understand as a new trustee. But you can do it. You were chosen for a reason. And to help you along the way, here are four things to consider at the start.
Study the Trust Agreement
The trust agreement governs the majority of your rights and responsibilities. This document should describe what actions you can, or cannot, take. Study the trust agreement in detail. Do not assume that you know what to do or that you know what the settlor wanted. Each trust agreement is unique, there is always some nuance, and sometimes that can make a world of difference.
Make Sure You are Really a Trustee
First, make sure the person appointing you has the power to do so. A settlor, an existing trustee, a trust protector, or a court may have appointed you. Each may have varying rights as to when or how they may appoint a new trustee.
The incapacitation of a settlor or trustee may have also made you a new trustee. If so, was the trust agreement’s incapacitation provision followed? These come in all forms, but a common provision requires obtaining doctors’ opinions. In these days of quarantines and limited access to patients, you may need to think ahead about these issues.
Second, make sure the person appointing you did it in the right way. Trust agreements have various requirements for how a trustee is appointed, and some do not say anything at all. Were there notice requirements? Writing requirements? Consent requirements? Whatever the case, make sure the person appointing you followed each step.
Finally, make sure you properly accept. If the trust agreement provides a manner of acceptance, substantial compliance is generally sufficient. But the better practice is to follow the designated manner exactly as written. If the trust agreement is silent, a trustee may generally accept by taking delivery of trust property, performing as a trustee, or otherwise indicating acceptance. If you are still deciding whether to act as trustee, be careful you do not inadvertently accept in one of these ways.
Identify Your Beneficiaries and Know Your Fiduciary Duties
As trustee, your primary job is to look out for the trust beneficiaries. The trust may have current beneficiaries who are actively receiving distributions. It may also have contingent or remainder beneficiaries who only have an interest once a future event occurs. These different beneficiaries may have competing interests, and it is important to understand each.
Generally, trustees owe all beneficiaries duties of care and loyalty. The duty of care requires a trustee to be actively involved, exercise independent judgment, and use the same skill and care as any similar prudent person. If you have special skills, such as an investment background, you may be held to a higher standard. Importantly, you may delegate certain responsibilities to a professional, so long as you use care in selecting and supervising the professional.
As to the duty of loyalty, a trustee must always administer the trust in the beneficiaries’ best interests, and not with regard to the trustee’s own interests.
Work With Your Co-Trustees
You may find you have several co-trustees. You must all cooperate to administer the trust together. However, if there is a disagreement, the majority generally rules. If there is no majority, you may have to ask a court for instructions.
A trust agreement may delegate certain powers to a specific co-trustee. Otherwise, co-trustees generally cannot delegate to each other actions that the settlor would expect all of the co-trustees to take together.
Finally, while co-trustees are not generally liable for actions of their co-trustees, you do have an obligation to prevent a breach of trust and to fix a breach of trust of which you are aware. Thus, you must speak up if you believe your co-trustees are acting improperly.
Unfortunately, in the coming days and weeks, there are likely to be many people called for the first time to act as a trustee. The good news is you will not be alone. And, as with so much these days, we will all learn to navigate this together.
Jason Domark is a member at Cozen O’Connor’s Miami office. He focuses his practice on complex commercial litigation, with an emphasis on international litigation, fiduciary litigation, and real estate related litigation. Jason may be reached at firstname.lastname@example.org.