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How to be an Effective Trustee

By John Carey, Managing Director & Portfolio Manager

A Weighty Role

Being named a trustee is an honor, but it can also be a burden.

A trustee is a person or firm who holds assets or property for the benefit of a third party. Trustees are responsible for asset management tasks such as overseeing investments, record-keeping, accounting, estate planning, and tax management.

An integral part of being an effective trustee lies in understanding the trust and its key terms. Standard practice suggests the trustee go through the entire trust with a lawyer present, to explain any legalese and answer pressing questions.

A trustee is tasked with overseeing investments within a trust and managing distributions to designated beneficiaries. The trustee must also effectively communicate with the beneficiaries to ensure that they are educated regarding the terms of their trust, and frequently up to date on relevant information.

Assembling a Team

One of the most important things a trustee can do to ensure success within their role is to enlist the help of experts and professionals to assist in managing the trust. Oftentimes, this team will consist of attorneys, accountants, and financial advisors.

An attorney can assist with estate planning, while a tax advisor or accountant can help navigate the complex world of taxation. Finally, a financial advisor is needed to create the investment strategy, track performance, and suggest changes as needed. A trustee should be sure to hire an advisor who is a “fiduciary” — or one obligated by law to always act in the best interest of their client.

Managing the Beneficiaries

Educating and communicating with the trust’s beneficiaries is a crucial part of being an effective trustee. Regular communication can help protect the trustee from personal liability. Trustees should hold semiannual meetings and regular phone calls with beneficiaries to keep them informed of any relevant information and avoid miscommunication.

When creating a distribution plan, the trustee must understand each beneficiary’s financial situation and their specific needs. From there, the trustee can work with the beneficiary to create a budget and ensure distributions are sustainable for the trust.

Finally, the trustee must provide detailed records to the beneficiaries. These include account statements, investment performance, distribution amounts, and any fees or expenses related to the trust. Documentation is essential as a trustee, particularly when it comes to the reasoning behind decision-making. A trustee must be able to prove that any decisions or changes they made were rational and impartial.

The role of a trustee is complex and full of responsibility, but following best practices and assembling a professional, knowledgeable team can ease the burden. If you are new to the role of trustee, or need some assistance in your current role, schedule a consultation with Griffin Asset Management today to see how we can help.