10 Essential Skills for Trustees

Being appointed as a trustee is a significant responsibility that requires a blend of financial acumen, ethical judgment, and interpersonal skills. Trustees are “entrusted” with the task of managing and administering the assets of a trust in the best interests of the beneficiaries. Whether you are overseeing a family trust, a charitable trust, or a corporate trust, here are some guidelines to ensure your success in this critical role.

1. Understand the Trust Document

Before taking any action, thoroughly read and understand the trust document. This legal instrument outlines the terms, conditions, and scope of your authority. Pay close attention to the following:

• Trust Objectives: It’s critical to understand the goals for which the trust was created. For instance, is the trust meant to equitably share assets between beneficiaries, to distribute assets to beneficiaries over time, to maintain assets in perpetuity in support of its beneficiaries, or was it established for another goal? How you administer the trust will be a function of its purpose.

• Beneficiaries: Familiarize yourself with who the trust’s beneficiaries are and how trust assets are to be administered to each. Be sure you understand their respective entitlements, and any differences in how they are to be treated.

• Discretionary Powers: As a trustee, you may have discretion over some areas of decision-making, whereas some decisions are likely to be dictated entirely by the trust documents. Understand where you have authority, as well as the limitations to that authority.
• Distribution Guidelines: The trust document will outline instructions about the timing of any distribution, as well as rules covering execution. As trustee, you are responsible for understanding and operating by those rules.

2. Adhere to Your Fiduciary Duty

Your primary responsibility as a trustee is to act in the best interests of the beneficiaries. This includes:

• Duty of Loyalty: As a trustee, your duty is to act solely on behalf of and for the benefit of the trust’s beneficiaries. Avoid conflicts of interest and ensure that all actions benefit the trust and its beneficiaries.

• Duty of Care: You are responsible for exercising prudence and diligence in managing trust assets.
• Duty of Impartiality: It’s critical that you treat all beneficiaries fairly and without favoritism.

3. Communicate Regularly with Beneficiaries

Effective communication with beneficiaries is crucial. Keep them informed about the trust’s performance, any significant decisions concerning the trust’s assets, and the overall strategy. Transparency helps build trust and can prevent misunderstandings or disputes. Consider the following practices:

• Regular Updates: Provide periodic reports and updates. Anticipate questions and work to provide adequate information up front.

• Open Dialogue: Be accessible to all stakeholders for questions and discussions.
• Clarity and Patience: Explain complex financial or legal terms in an understandable manner. Exercise patience when questions and issues arise.

4. Maintain Accurate Records

As a trustee, you are accountable for all transactions and decisions made on behalf of the trust. Accurate and detailed record-keeping is essential to establishing historical decisions and preventing disputes:

• Financial Records: Document all financial transactions, including receipts, disbursements, and investment performance.

• Meeting Minutes: Keep thorough records of trustee meetings and decisions.

• Correspondence: Maintain records of all communications with beneficiaries, advisors, and other stakeholders. When communication is verbal or over the phone, make a note of any important discussion points or decisions.

5. Invest Prudently

Managing the trust’s investments is a critical aspect of your role. Follow the “prudent investor rule,” which mandates that you:

• Diversify Investments: Spread investments across different asset classes to mitigate risk. Consider seeking professional assistance from an investment advisor to help create a long-term investment strategy and asset allocation.

• Manage Investment Risk Prudently: Assess and manage investment risks carefully based on the trust’s time horizon and risk profile.

• Seek Professional Advice as Appropriate: Consult financial advisors or investment professionals when needed.

6. Stay Informed and Educated

The legal and financial landscapes are constantly evolving. Stay informed about changes in laws, regulations, and best practices that may impact trust operations or your duties as a trustee:

• Engage in Continual Learning: Attend relevant seminars, workshops, and courses. Keep up to date by seeking out online and written resources that cover pertinent areas of focus.

• Seek Professional Guidance: Engage legal and financial experts to advise the trust on complex matters or issues that require specialized expertise.

• Build a Network: Connect with other trustees and professionals for insights and support.

7. Plan for Distributions

Ensure that distributions are made according to the terms of the trust document and in the best interests of the beneficiaries:

• Follow the Trust Guidelines: Adhere strictly to the distribution guidelines outlined in the trust document.

• Assess Needs: Consider the current and future needs of the beneficiaries, making any appropriate adjustments where the trust allows.

• Tax Implications: Be mindful of the tax consequences of distributions and incorporate tax strategies to mitigate the tax impact where appropriate.

8. Prepare for Potential Conflicts

Conflicts can arise in any trust administration. Being prepared and having strategies to manage disputes can help:

• Mediation: Consider mediation or arbitration as a first step to resolve conflicts amicably.

• Clear Documentation: Ensuring that all decisions and actions are well documented can provide clarity and justification for decisions.

• Seek Legal Counsel: Engage an attorney if conflicts escalate or legal issues arise.

9. Regularly Review the Trust

Periodic reviews of the trust and its performance are necessary to ensure it continues to meet its objectives:

• Performance Reviews: Assess the performance of investments and adjust the investment strategy and portfolio as needed.

• Beneficiary Needs: Re-evaluate the needs and circumstances of the beneficiaries regularly.

• Compliance Check: Conduct periodic compliance reviews to ensure ongoing compliance with legal and regulatory requirements.

10. Know When to Seek Help

Recognize the limits of your expertise and know when to seek help from professionals:

• Financial Advisors: Seek help from financial advisors for investment strategies and portfolio management.

• Legal Counsel: Legal counsel can assist with complex legal issues and compliance matters.

• Accountants: Work with accountants on tax planning and financial reporting.

Being a successful trustee requires diligence, transparency, care, prudence, and continuous learning. By adhering to this foundation, you can effectively manage the trust, fulfill your fiduciary duties, and contribute positively to the beneficiaries’ well-being.