Q. A close friend asked me to be the Trustee of his trust in the event of his incapacity or death. While it is an honor to be asked, I wonder what questions I should ask before accepting?
A. It is indeed an honor, as it means that your friend trusts your judgment and is willing to put the welfare of his trust beneficiaries in your hands. But being a trustee is also a great responsibility. You need to consider this request with your eyes wide open. Here are eight questions to ask before saying “yes”:
1) May I Read the Trust? The trust document is your instruction manual. It tells you what you should do with the funds or other property you will be entrusted to manage. Make sure you read it and understand it. Now is the time to ask questions.
2) What Are the Goals of the Trust-Maker? Unfortunately, most trusts give the trustee considerable discretion about how to spend trust funds, but with little or no guidance. Example: often trusts say that the trustee may distribute principal for the benefit of the beneficiaries’ “health, education, maintenance and support.” Is this a limitation, meaning you can’t pay for a yacht (despite arguments from the son that he needs it for his mental health)? Or is it a mandate that you pay for his support even if he has a job and can support himself? How are you to balance the needs of current against those of future beneficiaries? Ask your friend to put these wishes in writing.
3) How Much Help Will I Receive? Will you have a Co-Trustee and, if so, how will you divvy up the duties? Will you be authorized to hire professionals to advise you on investments, accounting, legal issues, and taxes?
4) How Long Will My Responsibilities Last? Are you being asked to take on this duty for a limited time (for example, until your friend’s youngest minor child reaches age 25), or for an indefinite period that could last the rest of your lifetime? In either case, under what terms can you resign? Be sure that the trust names successor Trustees, so that you may resign if it becomes too burdensome for you.
5) What Is My Liability? Generally, trustees are relieved of liability in the trust document unless they are grossly negligent or intentionally violate their responsibilities. Make sure the trust so provides, so that you are not held liable for innocent mistakes made in good faith.
6) Will I Be Compensated? Often family members and friends serve as trustees without compensation. However, if the duties are especially demanding, it is not inappropriate for trustees to be paid.
7) Are Any of the Trust Beneficiaries Special Needs Persons? If any of the beneficiaries are persons with disabilities who receive public benefits, such as SSI or Medi-Cal, make sure that the trust includes Special Needs provisions so that trust distributions do not cause the suspension of those public benefits. Ask that the trust be reviewed now by an Elder Law or Special Needs attorney to ensure compliance with relevant public benefit laws. Seek further guidance from an attorney specialist when you later begin your duties, as trust distributions must be handled in a special manner that is compliant with the rules of the public benefit programs.
8) Are There Problem Beneficiaries? Will acting as trustee create conflict between you and any beneficiary?
If after getting answers to all these questions you feel comfortable serving as trustee, then by all means accept the role. It is an honor to be asked and you will provide a great service to your friend and his beneficiaries.