The following is an informational resource for financial planners, attorneys, and settlement planners regarding how much control a trustee should have and when this control crosses the line into excess, potentially compromising the trust’s intentions and the beneficiaries’ interests.
By acting as fiduciaries to manage the assets within a trust to benefit the beneficiaries, trustees carry the weight of significant responsibility. In the case of a Special Needs Trust (“SNT”) or a Settlement Protection Trust (“SPT”), the duty is even greater. But precisely how much control should a trustee have? And when does this control cross the line into excess, potentially compromising the trust’s intentions and the beneficiaries’ interests? These questions are at the heart of trust administration and planning conversations worldwide.
This article explores, compares, and contrasts the differences between a “self-empowering” approach to trust administration and the “helicopter mom” model of hyper-supervision of the life choices of the beneficiary by an overzealous trustee.
A trustee is appointed to administer a trust, a legal entity created to hold assets on behalf of a beneficiary or beneficiaries. The trustee’s primary role is to manage these assets in the best interest of the beneficiary or beneficiaries, following the stipulations laid out in the trust agreement. This may involve making investment decisions, developing a spending plan, distributing assets, preparing tax returns, maintaining accurate records, and overseeing the life decisions of the beneficiary or beneficiaries.
In the extremely rare case of a compromised beneficiary with no guardian, this “absolute” level of control might be in order – but in practice, some trustees apply their “guiding hand” to every element of every trust. However, such autocratic supervision is rarely in the best interest of a trust’s beneficiary or beneficiaries. When trustees overmanage and interfere with a competent beneficiary, the trustee usually benefits with higher fees – or enjoys the perverse satisfaction of exercising control over such beneficiary. In effect, these “proactive” trustees act as the “mom” of the beneficiary, judging the beneficiary’s life choices and deciding what the beneficiary should be doing in the trustee’s opinion.
Let us look at actual examples.
While a trustee needs a certain level of control to effectively manage the trust, too much power can lead to issues. The trustee’s management needs to be balanced with the rights and interests of the beneficiaries. Best practices advise trustees to empower competent beneficiaries, be transparent about what impact the beneficiaries’ requests, actions, and decisions may trigger, and prioritize the needs of the beneficiaries over their own.
The role of a trustee is not intended to be that of a social worker, much less a “mom.” Yet, it is not uncommon, particularly with pooled trusts, that social workers, with no professional fiduciary licenses or training, act to manage the lives of the beneficiaries. Case management is not the role of a trustee. If hands-on case management is indeed needed and the beneficiary is competent, then a discussion with the beneficiary addressing the fact that the trust could pay for independent case management resources to assist the beneficiary is likewise necessary. The trustee directly providing such case management services may create irrevocable conflicts.
Excessive trustee control can present several challenges and risks. When a trustee has too much power, it can lead to a conflict of interest should the trustee make decisions that benefit themselves rather than the beneficiaries. Such actions often border on self-dealing, where the trustee uses trust assets for personal gain, favoritism, or where the trustee unfairly prioritizes one beneficiary over others.
Overreach by a trustee can also manifest in unnecessary or excessive fees. Some trustees may use their position to claim high compensation or “double-dip” by charging for multiple roles. This overreach can deplete the trust assets, leaving less for the beneficiaries. Empowering beneficiaries to make competent decisions with information and enabling guidance is the proper role of the trustee.
Trustees who also serve as accountants, financial advisors, investment managers, or attorneys for the trust need to exercise caution. These situations give rise to conflict-of-interest issues, particularly if the trustee charges separately for their professional services. Such trustees must maintain clear and detailed records.
The balance of trustee control is a delicate issue, and it’s crucial to adhere to best practices to lessen the trustee’s control and empower the beneficiary to avoid conflicts and ensure the trust operates as intended.
Regular communication and transparency are key. Trustees should keep beneficiaries updated on trust activities and any changes, including compensation. This not only builds trust but also provides an opportunity for beneficiaries to voice needs, concerns, or objections.
The selection of the trustee is crucial. Choosing someone trustworthy, knowledgeable, and capable of effectively managing the trust with the stated mission and a track record of empowering the beneficiary is essential.
The rights of beneficiaries should be a paramount consideration. Trustees should make decisions in the best interest of the beneficiaries and per the trust terms.
Trustee control is a complex and nuanced issue that requires careful consideration and management. By maintaining transparency, limiting control, making prudent decisions to empower the beneficiary, and prioritizing the interests of the beneficiaries, trustees can strike the right balance and ensure the trust serves its intended purpose.
For more detailed information on trustee services that empower beneficiaries and focus on fulfilling your needs and desires, visit www.easternpointtrust.com. We provide solutions tailored to your situation and fully transparent information about trust administration.
Finally, remember that trust administration is a complex process that requires attention to detail, a strong understanding of financial and legal concepts, and a commitment to acting in the best interests of the trust’s beneficiaries. By educating yourself about the process and seeking professional advice when needed, you can help ensure that your trust serves its intended purpose and provides for your loved ones in the most effective manner possible.
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