NC Trustee Duties

“Who do you trust to handle financial decisions for you if you can’t? I don’t mean who is doing the investing. I mean if you are in a car accident and end up in a coma, who is grabbing the checkbook, paying the bills, and keeping everything afloat. And if you do pass on, who is in charge of making sure that everyone gets what they are supposed to get when they are supposed to get it? It should be a person you trust, whose judgment you trust, who may not necessarily know a lot about investing personally but will work with a financial professional to get the help they need. They should be really good at spending money wisely, on your behalf or on behalf of your beneficiaries.”

This is almost verbatim the question my clients hear when I’m trying to help them hone in on choosing their list of trustees. The question itself shows just how much faith they should have in the people they pick. I then sometimes start to hear “Well, I’m not sure if I want them to be able to…” And then the list starts. I usually advise my clients to give their trustee broad powers and ability to act for the benefit of the beneficiaries for some very good reasons:

  • Broad Powers and Authority to Invest: It is critical that the person you trust enough to be trustee be able to invest however they see fit because markets, beneficiary needs, and life, in general, does not stay the same. In a good economy, it may sound good to say the trustee must sell all real estate within six months and divide the proceeds among the beneficiaries. If a person passes on when the real estate market crashes, then selling real estate at 40 or 50 cents on the dollar may be forced upon the trustee to make that six-month deadline. If your trustee is given the discretion to invest however they feel best, including renting out real estate until the market comes back, then the beneficiaries will be better off.
  • Broad Latitude to Care for Underage: Many of my clients want to care for their children and even grandchildren from beyond the grave, especially if they are too young to handle an inheritance. At the same time, many unforeseen circumstances can come up that my clients haven’t thought of. For example, a common discussion is whether or not to force the trustee to pay for education expenses. That is usually when I tell them the story of a person I knew whose parents left him a trust that said as long as he was enrolled as a full-time student that all of his education and living expenses would be paid. He managed to work within the university rules to technically be a full-time student but by dropping classes and taking “incompletes” he managed to only accumulate 3 or 6 credit hours per semester. Meanwhile, all of his living expenses were paid for him to be a “professional student.” And the trustee was stuck with this arrangement because his parents forced the education terms into the trust. If you have faith in the judgment the person you have named as trustee to provide for the education of the beneficiaries, then there is no need to “force” them to do so. And giving them the latitude to say no means a beneficiary can’t work the system like the professional student did.
  • Care for Disabled Beneficiaries: There is probably no greater estate planning urge than to provide for a disabled child or grandchild, and no bigger fear than unintentionally disrupting a disabled beneficiary’s benefits. While this often leads to clients believing they have to disinherit a disabled beneficiary, it more often leads to clients wishing to specifically provide certain things for their loved one and denying other things to comply with the existing disability and Medicaid rules. The problem is those rules change. I once reviewed an estate situation where parents set up a trust for their disabled son which directly left him their house, a vehicle, and the sum of $2,000 and put the rest in trust. The problem is the Medicaid rules changed and the equity in the house was now “over the limit.” This meant the disabled beneficiary had to deal with taking out a line of credit on the house, withdrawing and spending the money and then reapplying for Medicaid. He also had to sell his own car because by then he was old enough to be driving and he was not allowed to have 2 cars. If the house and everything else had simply been left in the trust in the sole discretion of the trustee, the trustee could work within whatever the rules are at the time to provide for the beneficiary without them losing their benefits.

The standard terms for our trusts provide broad powers for your chosen trustee to act on behalf of the beneficiaries, and I strongly advise my clients to stay away from the “can’t do this and can’t do that” provisions. When clients find themselves wanting to limit their trustee’s authority to perform certain acts or functions, then it often speaks more to whether or not they trust the person they named rather than any desire to limit particular powers. If you do trust them and their judgment, then empower them to do the best job they can with as many options as possible.