California Trustees – What Would Keep Me Up At Night – November 2016

Trustee responsibilities are extensive and they arise from different sources including the wording of the trust itself, statutes and case law. Of course you have to cover all areas of your trustee responsibility, but here is my list of primary issues that would keep me up at night as a trustee. This list is not in any particular order.

First, do you understand what the trust says and requires?

Second, have you marshalled and safeguarded the assets that are in or that are supposed to be in the trust? Are they in the trust and under your control?

Third, do you really understand your legal responsibilities including the wording and requirements in the trust, what the probate code and case law require of you? As a trustee you are a fiduciary. You have one of the highest standards of care, responsibility, liability and unbiased fairness and good faith required by law.

Fourth, are the trust assets being invested, managed and recorded properly and prudently? You need to evaluate and manage the returns and the risks, in accord with the wording of the trust and your statutory and case law fiduciary duties. So, for example, the stock market goes up and down. If the market goes down, is your approach to the portfolio management designed to help you avoid liability for losses, not just because the market went down, but also because you have implemented a portfolio approach and might allow you to net losses against gains? And are your investments prudently diversified, also taking into consideration possible risks? You will find additional posts on this blog about investment responsibilities.

Next, do you have and use the proper fiduciary demeanor and decision making approach required of a trustee?

Sixth, is the trust cash flow prudently managed? You might, for example, through no fault of your own have a trust with declining asset values or liquidity issues.

Next, do you know what to do if you have beneficiaries who are disagreeing with your decisions, or who are threatening litigation, or who have initiated litigation?

Eighth do you know what information you must or possibly should provide to the beneficiaries, including, for example, possible accountings and other information? Even if an accounting isn’t required, I do recommend that you prepare an accounting, or some form of an accounting. And, of course, you do have to keep complete records. Even if an accounting is not required, courts very often will order that accountings be prepared anyway. And, court and probate code compliant accountings include specific and detailed requirements.

Ninth, do you understand that you have personal liability exposure for the actions that you take or don’t take as the trustee? You are required to be prudent with risk management. Also consider possible fiduciary insurance coverage although in most situations it isn’t required.

Tenth, do you know what additional planning opportunities, if any, exist or might exist? Similarly, are you aware of new or changing tax, probate code, planning, and investment statutes and rules? And have you calendared important planning and compliance dates?

And last on this list, do you consult with necessary and appropriate professionals to advise you on your fiduciary duties, trust administration management, compliance, taxes, investments, insurance, asset protection and preservation, communicating with beneficiaries, and other important or possibly important issues?

That’s it for now. Thanks for reading.

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