As you complete or review your estate planning, care should be taken in appointing a trustee. A trustee is a person appointed to manage your trust for the benefit of the trust beneficiaries. A trustee is charged with following the instructions set forth in the trust instrument, investing the trust principal, filing tax returns, and generally administering the trust. Trustees in Connecticut and New York (along with many other states) are required to comply with the “Uniform Prudent Investor Act (“UPIA”). The UPIA is intended to set a standard for trustee actions. The trustee is directed to manage the trust assets as a “prudent investor” would, considering the purpose and terms of the trust, the distribution instructions, and the needs of the beneficiaries.
Under UPIA, the trustee should determine whether the total portfolio is appropriate for the trust. Individual investments are not per se appropriate or inappropriate. Diversification is an important piece of protecting the trust principal for the beneficiaries. Importantly, the trustee is allowed to delegate investment and management functions to other people, such as investment advisors and accountants, provided that the trustee maintains oversight over the person to whom a task was delegated. A professional trustee will know how to make this analysis. An individual trustee is encouraged to consult with other advisors.
The trustee, individual or professional, should build a team of advisors to assist in managing the trust. A family member trustee is typically chosen for his or her connection to the beneficiaries. He or she might also have special expertise with taxes, investments, or legal issues; however, if not, the trustee should hire an investment advisor, accountant, or lawyer. The trustee is in charge of the team and must ensure the whole team is working in furtherance of the trust’s purposes.
Shortly after accepting the position of trustee, the trustee is charged with reviewing the terms of the trust and the trust assets to determine which assets should be kept or sold. The trustee should carefully review the terms of the trust to learn the parameters of discretionary decisions he or she can make. Next, the trustee should get to know the beneficiaries. What are their needs? Does the current investment strategy meet those needs? Recall that all decisions impact both current and remainder beneficiaries and the trustee is accountable to both. Again, the trustee might need to consult with other advisors.
While serving as a trustee is a large responsibility, the key to success lies not in the growth of the trust or the performance of the investments, but rather the careful management of the process. With the right team and strategy in place, the trustee and the trust can flourish. For more information, please contact Heather J. Lange (hlange@brodywilk.com).