Trustees Guide: The Do’s, The Don’ts, and All The Sweet Benefits

Life can be extremely unpredictable, and in these uncertain times, it’s not surprising that more and more people are taking additional measures to protect themselves and their loved ones. A popular measure of protection is the creation of trusts, which fulfill the purpose of providing benefits for those slotted for protection. Owners of assets set up trusts in whichever form, known as trustors, grantors, or settlors, known as trustees, to supervise and manage their assets.

The entire concept serves beneficiaries, who, as the name suggests, primarily benefit from the assets contained in the trust.  Although close family relations and friends are popular choices for trustees, professional trustees are becoming a more sought-after option for trust management. Your responsibilities are similar to an ordinary trustee, albeit held to a higher standard as a professional trustee.

Who are Trustees?

Professional trustees receive attractive compensation for their work, especially if they manage their assigned trusts successfully. Trusteeship can often be complex, varying from trust to trust, and as such, can be overwhelming for newcomers trying to break into this space. To truly comprehend what it means to be a trustee, it’s important to know trusts, understand your duties and liabilities, and know your possible avenues for compensation as a trustee.

The Trust: How does it work and who is involved?

A trust is a legal agreement/contract made between two parties to assign management of the owner’s assets (known as the trustor) to the trustee (in this case, you), and this is done solely for the benefit of a beneficiary or beneficiaries, who access the trust as determined by its terms. The overarching principle of trusteeship is thus that the trustee acts in the best possible interest of the beneficiaries.

There are many different types of trusts that you can manage, and each trust comes with its own unique terms that dictate the trustee’s responsibilities. Generally, trusts are categorized as irrevocable and revocable, or living and testamentary. The list gets longer as we break down the specifics, but this means that you have more options to choose from.

• Irrevocable trusts. These trusts are quite rigid, and there is little to no room for any alterations to its terms by the trustor.
• Revocable trusts. In these kinds of trusts, adjustments and amendments can be made, and the trustor is granted access to the trust throughout his/her/their lifetime. There is even an allowance to revoke the trust entirely should the trustor see it appropriate to do so.
• Living trusts. These trusts are created during the trustor’s lifetime.
• Testamentary trusts. Also known as the ‘trust under will,’ these trusts come into action after the trustor’s death and are enacted through the use of a will.

Trusts tend to fall under these broad segments; however, they are specific to the functions they perform and the reasons for their creation. Let’s look at a couple of them:

1. Special needs trust. These trusts are set up specifically for persons described as having physical or mental disabilities or those looking for a way to cater for another party with the same, for example, a child. The former is known as a first-party special needs trust, while the latter is a third-party special needs trust. These are useful for ensuring that the beneficiary is not disqualified from any of their entitled benefits, e.g., government benefits.
   
   
2. Charitable trusts. Dedicated to charitable causes, these trusts can be subdivided into two. Charitable lead trusts prioritize financing for charities first, and remaining assets are then allotted to beneficiaries. The very opposite is Charitable Remainder trusts, where assets are first distributed among beneficiaries before the rest is used to support charity work.
   
   
3. Asset protection trusts. The main goal of an asset protection trust is to protect the assets within it from so-called creditor attacks, that is, future claims from creditors. Once the threat of these attacks is relinquished, assets can be returned to the trustor when the trust agreement lapses.
   
   
4. Tax Bypass trusts. These are usually created when trustors want to avoid payment of estate tax on their assets. Commonly, it is favorable for parents who would want their children to inherit their assets without paying hefty taxes on them.
   
   
5. Spendthrift trusts. Typically, these trusts are created to serve beneficiaries that are not in a position to manage their assets, such as extremely young beneficiaries, or perhaps in cases where beneficiaries have proven reckless when it comes to handling their finances.
6. Blind trusts. Interestingly enough, trustees enjoy a much higher level of discretion in these trusts than the norm since beneficiaries have no preceding information about the trust, nor are they entitled to the same.
7. Insurance trusts. Insurance policies can also be counted as assets, and can therefore be protected by trusts. As with tax bypass trusts, insurance trusts aim to avoid paying the estate tax on insurance assets after the trustor’s death.

What are my duties as a trustee?

Given that each trust’s terms can vary wildly depending on multiple factors, trustee roles can vastly differ. Nevertheless, there are several widespread duties that most trustees are expected to carry out during their service:

• Understanding: A trustee should be able to accurately and adequately understand the trust agreement and its terms. Consequently, a trustee must adhere to the given terms of the trust as long as they serve the trust.
• Beneficiary interest: Trustees are said to act in fiduciary duty. They must act solely in the interest of their beneficiaries, and this must be consistent throughout the duration of the trust.
• Administration: It is the role of the trustee to impartially distribute assets to beneficiaries without employing personal favor to one or the other.
• Non-delegation: Essential activities necessary for the management of the trust should be done by the trustee and the trustee only. However, by the power of attorney or deed of delegation, the trustee does have the mandate to enlist assistance from professionals when needed while remaining directly involved.
• Decision making: A trustee is tasked with making decisions for and on behalf of the trust as provided by the terms. Even when multiple players are involved, the final decision is always made by the trustee.
• Record keeping: As required, trustees must keep updated, clear and transparent records about the details and management of the trust.
• Investment: Most trustees are expected to support the growth of the trusts they have been appointed, which requires proper wealth management. In this manner, investing assets in the right channels to grow their rank highly under a trustee’s responsibilities.
• Information: Since beneficiaries are entitled to be kept informed on their trusts in most agreements, it is, therefore, the trustee’s duty to do so transparently and in real-time.
• Duty of prudence: To put it simply, this means that the trustee is expected to manage the trust with certain standards of care. Furthermore, the trustee should exercise duties with a level of wisdom and discipline.

Do people really hire professional trustees?

Absolutely. Traditionally, a trustor would appoint someone of close relation, but there are growing cases of trustors preferring to work with higher trustees, reasons being:

1. Impartiality: Professional trustees can be trusted to be impartial in their proceedings since they do not have any direct involvement with persons prescribed in the trust
2. Investments: A professional trustee is aware that they are expected to grow the assets of a trust. Thus they can invest diversely but wisely while exercising just the right amount of caution for said growth.
3. Structure: A trust managed by a professional trustee will have certain structures that can make it easier for both the trustor and beneficiaries to navigate, making for a smooth trust experience.
4. Continuity: A professional trustee can be relied on to provide service for the duration to which they agreed, instead of closely related trustees, where personal relationships can make the process a lot more complex.
5. Skills: Professional trustees should have primary wealth management skills. Additionally, supplementary skills, such as accounting, financial planning, and law, could also be provided by a trustee, thus eliminating the need to hire other parties to carry out these tasks and reducing management costs.
6. Certainty: Due to the previous factors discussed, professional trustees provide an air of certainty, as they know what they are required to do, are equipped to carry out their duties, and hence can be expected to produce positive results.

How much do I make as a trustee?

There isn’t a set salary for professional trustees globally, so that the range can be quite wide for any given trustee. Your salary could be quantified based on any of the factors listed below:

• The type of trust you are managing.
• The time you spend managing the trust
• The tasks you are required to accomplish as a trustee
• Your skillsets, which determine how much you can do for the trust.

Salaries can be paid at an hourly rate, as a regular fixed amount, or even as a percentage of the trust you are appointed to manage.

Hourly Rates: Hourly rates can range from $20 to $34

Fixed-Rate: According to Glassdoor, the average annual salary for a professional trustee is $60000. The salary range starts at $22000 and can go all the way up to over $200000. Zip recruiter estimates that a trustee can walk away with $68630 annually on average, with a range varying from $18000 to $158000.

As a percentage: Trustees can receive a percentage from 0.25%-2.0% of the trusts they manage.

Am I liable as a trustee?

Yes. This is because, as a trustee, you are expected to execute your duties to the highest possible standard; otherwise, you could impact the trust negatively. Trust is a serious matter, and certain cases could have you persecuted by the law if you are not diligent. These include:

• Dismissing the trustor’s wants.
• Acting in your own benefits as opposed to the benefits of the beneficiaries
• Investing unwisely
• Neglecting your supervisory duties.
• Keeping inaccurate records

This should not be a cause of concern for you if you feel capable of executing your necessary duties, so remain calm.

Hello trustee…

As professional trustees become a staple in wealth management, you should feel confident in finding your place in this field and having a stable and rewarding career. Provided you acquire the necessary skillsets centered around wealth management and law, your value as a trustee could grow tremendously, giving you the power to negotiate an appealing salary. This article ideally has given you the facts about being a trustee and opened you up to the diversity of this field. That being said, the first step to becoming a trustee is to trust in yourself, so if you feel ready, don’t wait any longer. There a couple of trusts waiting on you to successfully manage them!

Also read Top Paying Jobs in Real Estate Investment Trusts 2021