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You’ve Been Appointed Trustee, Watch Out! – Massachusetts

By Harry S. Margolis

Being chosen to act as a trustee is a vote of confidence in your ability, but it is also a big responsibility. Trustees must locate and protect trust assets, invest assets prudently, distribute assets to beneficiaries, keep track of income and expenditures, and file taxes. If you don’t perform your duties properly, you can be held personally liable for any losses or extra costs.

The best way to avoid any potential problems is to hire an attorney to assist you. While it may be tempting to avoid the expense of an attorney, not having an attorney at all could cost you much more if errors are made. But whether you hire counsel or go it alone, here are your duties as trustee:

  • Disbursements. You will need to disburse trust income and assets to the beneficiaries as directed by the trust document itself. In making these disbursements, you will need to evaluate the trust resources, the other resources of the beneficiary or beneficiaries, and the grantor’s intent in creating the trust. Is it okay to deplete the trust based on the beneficiary’s current needs, or do you need to maintain it for the beneficiary’s entire life? If there is more than one beneficiary, and there almost always is, since there’s often a life beneficiary and remainderman, you will need to balance their various interests.
  • Investments. You must invest the assets prudently. This generally means in a balanced portfolio of stocks and bonds. In general, investing entirely in either stocks or bonds, or leaving everything in a money market account, would not be considered prudent. The best investment strategy will be affected by the size of the trust and its expected duration. In addition, the trust may hold special assets that affect the investment approach, such as real estate or ownership of a closely-held family business.
  • Fiduciary duty. As a trustee, you have a fiduciary duty to the beneficiaries. This means you have to put their interests first. This can become difficult if you are also one of the beneficiaries, since you will have a conflict of interest between your separate roles.
  • Accounting. You must keep excellent financial records and provide all current beneficiaries with an annual account of the trust’s income, expenses and distributions over the year, as well as the end-of-year trust holdings.
  • Taxes. In most cases, you will have to prepare (or more likely hire an accountant to prepare) a trust income tax return each year.
  • Investigation. You need to stay in contact with your beneficiaries and understand their circumstances in order to make sure you are carrying out the goals of the trust as intended by the grantor.

As you can see, serving as trustee is no simple task. The good news, however, is that if you carry out your duties in a responsible way, for the most part your decisions and judgment should not be second guessed. If you have the trust assets invested, for instance, in a diversified portfolio, you cannot be faulted if they decrease in value because of a market correction. On the other hand, if you put the entire trust into GameStop at the height of its value, and then it drops precipitously, you could be held liable for departing from investment norms.

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