One of the most important decisions you can make in preparing your estate planning is who will be the fiduciaries. This includes the personal representative(s) (also known in some places as the executor) of your estate, and the trustee(s) of your trusts.
Today, I want to talk about the other side though. Let’s say that someone has appointed you Trustee of a Trust established for their wife, their children, or other members of their family, and you decide to accept. Being a Trustee could be a major job and certainly carries with it significant responsibilities.
The Trustee has a duty to administer the Trust for the benefit of the beneficiaries. As such, the Trustee has a duty of loyalty to the beneficiaries, a duty of impartiality, a duty of prudent administration, a duty to inform and account to the beneficiaries, and a duty to prudently invest the assets of the trust.
On the plus side, the Trustee is often to be paid fees for their work on behalf of the trust from the trust’s assets.
On the minus side, there is a danger of being sued for breach of fiduciary duty of you mismanage the assets.
In New York, the widow of a New York City attorney was sued by his children (her stepkids) because she invested the entire family trust with Bernie Madoff. It should be an interesting case to watch, but I think she’s going to lose.
A lesson to take from this. If you are a trustee, make sure you diversify the trust’s assets.