0:11 foreign hello and welcome to trusts and Estates weekly I'm your host Kevin bemel and we are here every Monday morning at 10 A.M Pacific time uh that makes it 1pm Eastern time to talk about all things related to trusts Estates probate and both from the standpoint of your own finances as well as those of us who help people in in those areas of their financial lives and so today we're going
0:48 to talk about the role of the trustee and so anytime a trust is created one of the three parties to the trust is the trustee now a trust has three parties the trust store or grantor that's the party who creates the trust the beneficiary and that is the party or parties who benefit from the trust itself and then the trustee is the individual uh who essentially manages
1:26 the Affairs of the trust now uh the trust the trustor beneficiary and trustee or they could all be plural could be all the same person or all the same people or they can all be different so for example in a Special Needs Trust typically the the grantor or the trust store will be the person who has the money that's being set aside in order to um take care of in some way a beneficiary who has special needs
2:03 perhaps they're a neurodiverse uh child or or even a neurodiverse adult who needs some some uh some that needs some um resources in order to have some support services so in that case the trust store and the beneficiary are different and the TR now the trust store could also be the trustee um but um many times will not be so for example um um I'm I'm a uh involved in a a trust
2:38 a Special Needs Trust where um the uh grantor was the uh grandchild of the beneficiary and the trustee is the parent okay so um in that case all three are different people and then that that's not unusual either so we're going to talk about the role of the trustee that's the party who manages the trust and look at it both from the standpoint of if you're a trustee um how what are what are your
3:14 responsibilities what are your duties as and and then if you are someone working with a trustee how does that work okay so let's go to our handy dandy PowerPoint uh here we go um okay playful there we go okay so trust in the states weekly you're all familiar with that and um I I always like to mention the three pillars of attainment it's what all of the way to wow shows are based on for
3:49 those of you who are joining us for perhaps the first time and haven't seen this before um you'll you'll you'll see it in every show that we do um it's it's the system I developed originally uh many many years ago now and it's and I've I've adapted it for civilian use um and um there is a a show on that on our YouTube channel if you want to know more about it today we're dealing primarily in the Pursuits area in finances um although we're going to be dealing with relationships as well a little bit
4:24 oops didn't Advance okay there we go okay so the role of the trustee so um these are the shall we say fundamental responsibilities of a trustee first of all the trustee must follow the grantors instructions second invest assets prudently and third keep accurate records all right so let's let's go through these now in in more depth so follow the grantor's instructions well
5:01 where those come from well they come from the trust document itself so the document that creates a trust okay the trust document hence why it's called that right it it explains how the trust is to be managed now some trust documents are very specific and others are more more General okay so a trustee may have have greater or lesser flexibility in how they handle the
5:39 matters of the trust okay now in a trust document it's going to specify who the parties are number one and number two what the purpose of the trust is and then it's going to go into [Music] um you know what what uh Authority the trustee has okay and the trustee cannot exceed that Authority okay if the trustee feels something needs to be done that the trust does not allow okay the trustee may need to go to court to get
6:14 the Court's permission okay um especially if um the grantor is deceased okay so if the and and it also depends on the type of trust um but assuming it's it's an irrevocable trust so at that point um the grantor's ability to make changes is really not there anymore okay so you'll be reliant on a court to decide whether any changes are are valid okay
6:49 um as well um if there is um uh uncertainty on the part of the trustee as to how to follow the grantor's instructions okay it may behoove the trustee to go to court and get uh clarification on that before acting okay so once the trustee has acted if the beneficiary or the beneficiaries representative believes
7:24 that the trustee has acted outside the scope of the grantor's instructions now the trustee could be subject to um some kind of sanctions or even removal okay if uh if a court were to find that were the case so in order to avoid a conflict like that okay it may be more prudent to go to court part and get the courts sanctioned up front before the trustee before you as a trustee take an action okay rather than
8:01 after the fact now as someone working with a trustee okay maybe you're an accountant or a lawyer okay and and and the trustee is is contemplating a particular um action with respect to the trust okay you may want to advise them to get Court uh Authority um before taking an action okay now if you're a beneficiary right and and the trustee is managing the Trust on your behalf so assuming that um you are old enough to
8:36 file an action on your own and you have capacity to file an action on your own so rather than um uh you know waiting for the trustee to act and then having to file some kind of lawsuit if you believe the trustee has acted improperly right you may want to consult with the trustee and or a lawyer and and sort of you know negotiate out how this is all going to be handled in order to avoid a conflict okay keep in mind that
9:11 um no matter how thorough the grantor and the grantor's legal council were in setting up the trust questions can arise okay um and and so following the grantor's instructions may not be as straightforward as it seems okay so rather than litigating these uh issues after the fact many times it can be a better um a better path to deal with questions
9:46 up front Okay so um let's say for example um there's a um a special needs trust that said that that limits um what the um proceeds of the trust can be used to pay for okay so if there's some question as to whether a particular expense falls into a category or not rather than litigating it after the money has been spent it may be better to discuss it up
10:21 front and and if necessary get the Court's approval ahead of time before proceeding with that particular disbursement okay all of that can be done um and and the fact of the matter is while you know I'm sure you've heard the off uh off use expression it's better to ask for forgiveness than permission um from the standpoint of a trustee that's typically not not a good um policy you're better off figuring these things out before you act now in
10:58 the case of an emergency uh perhaps there's a a health care emergency and and and and funds are needed in order to pay for the health care or something like that all right so in that case you may need to balance um prudent action versus dealing with the emergency okay um but it but in in most cases where it's where it's not an emergency you're probably better advised to get Court concurrence or not on whether what you're doing follows the grantor's instructions rather than acting and
11:33 dealing with the Fallout afterwards okay next um invest the assets prudently so um the Prudence standard really comes down to how would the typical individual with this responsibility act Okay so you know you may think that well um I'm going to put all of their Assets in cryptocurrency for example right well I don't think that would be how a typical
12:08 um investment advisor um would would handle the Investments now maybe you know there's you know putting a small amount of the trust Assets in cryptocurrency would be appropriate it would depend on a lot of different factors okay but in any event um prudently meaning means above all for the best interests of the beneficiary not for the best interests of the grantor or the trustee okay so the assets have to be invested prudently in
12:44 order to maintain um the uh Capital the value of capital in the trust and or and maximize income to the trust okay now sometimes those goals can be in conflict and so again you have to look at the details of it now a trustee may have the authority to contract with um some sort of investment manager a wealth manager or you know just a a financial advisor
13:19 who may make um may give advice on investing the assets or may make the actual decisions Okay so the trust document should specify what Authority the trustee has in terms of giving responsibilities to a third party okay but these days um especially if the trustee is is not an investment specialist so oftentimes the trustee is going to have the authority to engage a third party to
13:54 manage the assets prudently now or to in to invest and manage the assets prudently now that does not relieve the trustee of all responsibility so the trustee would have the obligation to make sure that whatever third party is entrusted with making those investment decisions is competent to do so okay so the trustee can't just say oh I'm going to have my brother-in-law do it because you know he's my brother-in-law um if your brother-in-law is not a good uh you know it's not a competent investment advisor that would not be
14:30 considered investing assets prudently okay as well the trustee will has the obligation to monitor the um activities of the uh wealth manager in the investment advisor investment manager okay minimally that would be reviewing whatever documentation is received by the trust either confirmations of Trades monthly statements whatever whatever is being generated needs to be uh reviewed in
15:05 order to make sure that the third party is acting prudently okay and um if there's any questions the trustee should ask those questions and document them again in order to demonstrate that he's acting prudently okay next keep accurate records okay so um keeping accurate records would among other things um be probably some kind of monthly statement of the Assets in the trust um and and tracking
15:41 um the the value of the Assets in the trust it's going to be documenting any income to the trust any expenditures the trust has made they it may even entail doing some kind of monthly uh statement um that's available for the beneficiary to review or maybe the trust document requires the submission of a monthly statement to the beneficiary and or the beneficiary's representative okay so all of that would be included in keeping accurate records okay yeah I think we're
16:18 doing all right on time here let's go on okay further um um obligations um for the role of the trustee communicate with beneficiaries okay so this goes back to what I was saying a moment ago um about um making sure you're following the grantor's instructions it it probably makes sense to communicate with a beneficiary or beneficiaries beforehand rather than taking a step that then the beneficiaries disagree with in causing a
16:54 dispute okay so um you know again it it just it depends on the uh situation um but but generally speaking some kind of monthly reporting is probably uh prudent if there's no um unusual um matters going on with respect to the trust now if there's something unusual that may need to be communicated to the beneficiary or beneficiaries right away okay
17:29 and if something unusual needs to happen but it's not an emergency again that probably needs to be communicated to the beneficiaries right away so that they understand what's happening before the steps are taken okay it also means like accepting communication from the beneficiaries so the idea that I'm the trustee and I get to do whatever I want no not not true aside from of course having to comply with the grantor's wishes as documented in the trust document you have an obligation to
18:05 listen to the to the beneficiary now by the way just because the beneficiary is asking for something or demanding something or whatever that does not mean you have to fulfill it but you do need to listen so the beneficiary may be getting a particular disbursement from the Trust In accordance with the grantor's wishes and that may not be enough okay and the beneficiary may want more for example well if the trust does not allow a larger the trust meaning the document doesn't allow for a larger disbursement to the beneficiary while you you know are
18:41 obligated to listen to the beneficiary's request you know the answer is no and and the reason and I wouldn't just say no okay I would say you know the the the the the trust document does not permit me to give you um you know a greater disbursement I'm limited by the terms of the trust document as to how much I can give you now by the way um if you think that the beneficiary is Justified in asking for a larger disbursement okay so then you know the
19:17 correct answer may be look we can apply to the court and if the court will allow it um then I can do it but I can't do it on my own authority okay now if you don't think it's uh prudent for the beneficiary to get additional funds so then you know you you're not obligated to um uh to make that offer especially if it's well I mean if the trust if the trust document requires you to you know apply to the court if the beneficiary wants
19:53 more well then you have to but if the trust document is silent on that then you you're under no obligation to do that okay protect trust assets so um this this is is probably I mean aside from following the grant or his wishes this is probably your most important uh obligation as a trustee that is to protect the trust asset it's Assets Now this is of course closely related to investing the assets prudently okay
20:28 um one of the things you want to do when you're investing the assets is to protect the trust assets okay um but that may but there are other things that the truck you may need to do as a trustee to protect the trust's assets so for example if the trust owns some real estate the actual property I'm not talking about a real estate investment trust shares but owns a piece of property well so you may need to make sure that that property is properly insured okay so that if there was you know God forbid a fire and there was
21:03 damage to the property the property can be built okay now again if there's real estate in the trust as a trustee you may manage it yourself or you may have a property manager who manages it okay specifically a property management company okay now that company typically will have a contractual obligation to maintain Insurance okay but just because the the management company has the obligation to maintain the insurance doesn't mean you are as the trustee are relieved from the
21:39 responsibility of making sure that the management company is doing what they're obligated to do okay so the this is why um you would you would need to get periodic reports from the management company and you would also so if there is an insurance policy you would want the insurance company to have the obligation to notify you as the trustee if for some reason the insurance were in danger of lapsing okay so for example if there's a loan on the property the lender is going to require
22:15 the that the insurance be set up in a way that the lender is notified if there's a potential lapse in insurance coverage as the trustee you can get that same type of notification and that is that I I would argue is part of your obligation to protect the trust assets okay now as as a beneficiary you can expect again this is a primary obligation of the trustee right so it's perfectly legitimate if there's some real estate
22:50 um for example and it's just this is just the most obvious example so let's say you you know you drive by the real estate you you know where it is um and you see it um and and let's say um there's a tree that looks like it's falling down okay it would be completely Justified for you to call up the trustee and say hey have you been by the property lately it looks like the tree in the front yard is ready to fall down it could hit somebody it could damage the building et cetera Etc okay and it is the trustee's obligation to make sure that that is dealt with probably more than just a call to the management
23:25 company if there is one to say hey have you checked out the tree you know well the beneficiary doesn't even have the obligation to do that the fact that you've been given actual notice of a potential Hazard to property owned by the trust means now um that that you must take steps to see that it's fixed in a timely manner so um again that's all part of the trustee's duty to protect the trust assets and again notice communicate with the
24:00 beneficiaries here's you know here's look here's a beneficiary looking to help you out right so as a trustee this is why you want to have open communication with with the beneficiary or beneficiaries okay next file the tax returns so depending on the type of trust if it's an irrevocable trust so um it it may have the um it may be necessary for it to file a a tax return okay um and so if that's the case so the trustee has the obligation uh to do that
24:35 all right now um if it's a revocable trust so then um the income to the trust may fall um may need to be reported by the grantor if the grant Taurus well well if the grant the grantor would still be alive if the grantor is still alive and it's a revocable trust so then the responsibility for reporting the income is with the grantor however as the grantee I mean as not as the grantee as the trustee um you would need to work with the Gran
25:10 tour to make sure that that happened okay assuming that you know the grantor and the trustee were separate individuals all right so um while you may not have in that case the primary responsibility for filing the return um you are going to have a role in making sure that the tax returns are are filed I don't know what this is all about okay uh let's let's move on okay role of the trustee the I think these are the last two um distribute assets so um you know depending on the terms of
25:46 the trust the trust May um um dissolve at a certain point in time or as a result of a certain action okay again that'll depend on the what the trust document says so if that's the case then as the trustee you are going to have the duty to distribute the assets okay according to the grantor's wishes as expressed in the trust document now before you can distribute assets you may and I I stress may have
26:21 an obligation to pay debts that that have been incurred by the trust okay that can be a complex situation okay depending on the exact circumstances certain debts actually may not be debts of the trust they may appear to be so but in it legally or not and so if you are not an expert in this area you are going to want as a trustee you're going to want to get legal and or account illegal and accounting advice on on how to properly distribute the assets
26:56 and again you're going to want to do this before making the distributions not after okay once the once the assets have been distributed if there's a problem now you're you're you know probably going to get tied up in litigation okay and there may be some necessity to communicate with the beneficiaries right they may be pressing I I want my money I want my money if you're not uh sure how the assets should be distributed so then you may need to say the beneficiary look um it's it's unclear uh you know who
27:31 gets what or who gets how much especially if there's multiple beneficiaries right and so in that case um you may you know open communication letting them know what's going on could for stall them you know suing you as the trustee of the trust because you know you're delaying are unreasonably delaying in distributing the assets okay finally um and and and and this this is you know this is who you are as a trustee you act as a fiduciary which means that you put the best interests of the beneficiary
28:08 above your own always okay there is never a time when you can say oh you know this better he's such a pain in an act as beneficiary I'm sick and tired of this I'm just going to do this and that's it I don't care if it if it hurts him or not cannot do it doesn't matter how much you like or dislike the beneficiary you must always act in the beneficiary's best interest okay that is what a fiduciary is um and that is why in a state like California for example there is a a role called a professional fiduciary Who
28:46 Um can be hired to act as a trustee and is aware of what what is the role of a trust what is the role of a fiduciary how does one fulfill a fiduciary obligation okay by the way a professional fiduciary is not the only type of fiduciary there is um in in in in these roles it's just a that's a particular licensed occupation um that can fill the role of a trustee okay and I think oh okay here act as a fiduciary so let's
29:21 let's yeah let's go through this real quickly so what does it mean to act as a fiduciary first of all you act in the best interest of the beneficiary which I mentioned you avoid conflicts of interest okay all if if if one thing could benefit you and another thing could benefit the beneficiary you're going with benefiting the beneficiary always and if something looks like it might benefit you at the expense of the beneficiary you are going to avoid doing that thing if it doesn't seem like you can't avoid it that may be a time when you're going to go to court and get authorization to do something so
29:58 as so the court is already ruled okay it's fine for you trustee to do that it's not a conflict of interest go ahead um you may not under any circumstances co-mingle funds assets or any any property of the trust with your own the trust should have its own accounts okay that are vested in the name of the trust this is whether the trust is revocable or irrevocable it doesn't matter never put any of your money into the any of the trust accounts now you may say well wait a minute what if
30:34 the trust owes me money okay that's that's different if you're entitled to a fee as a trustee maybe periodically you have a monthly fee or something okay when it's time according to the trust for you to be paid that fee so then pay that fee to you that's fine but you know don't leave fees in there to accumulate either okay make sure you're following whatever fee payment schedule that the trust has finally get professional advice I mentioned this earlier is especially if you are not a legal or accounting expert or an investment expert you're going to want to have
31:10 third parties giving you professional advice to make sure that you are fulfilling your fiduciary obligation okay and yeah that that is the end there okay so any ooh we're right at 10 30. um if you want have any questions or need some help in in navigating through these issues here here's some of the places you can contact me these will be in the show notes along with other ways to contact me feel free to do so I'm happy to answer any questions if you have comments Suggestions by all means
31:45 again put them in there here's all the legal stuff let's go ahead and clear uh stop the sharing clear out and and and that is our show for today so it was a a brief but uh hopefully if uh you see it's a thorough summary of what a trustee does what the role of trustee is how the trustee has to behave and for those of you who are may have to deal with a trustee um how you as a beneficiary um might interact with the trustee okay so um you know it's it's the the the basics
32:22 are not super complicated the the devil as they say is in the details right is in as doing the actual work that's where the uncertainty can arise okay and so you know number one act prudently to um always I mean sorry number one act as if be sure you're acting in a fiduciary manner two act prudently and three communicate if you're doing those three things you will likely avoid any conflict and you will be able to uh fulfill your trustees role okay so that that's that's the show for today
32:58 tomorrow at 11 A.M Pacific time is business lessons from the military we're going to be continuing with our discussion of um Marine Corps War fighting Doctrine we're talking about how cultural cultural issues can impact how we do business how they can um enhance or detract from the success of our business and then on uh Wednesday at 12 30 p.m um uh Pacific time is uh people making money and uh off the top of my head I don't remember what we're discussing on
33:34 Wednesday um but if if you are on my email list if you look at the bottom of the emails you you get after this show you'll see what the topic is if you're not on my email list please uh feel free to subscribe go to my website demo.com you can subscribe there um and you can also follow us on social media all the links will be in the show notes after this episode posts so thank you very much for joining me today it's it's good to be back after uh a few weeks of of being injured and and the
34:09 ill and uh good to good to be talking with you again and look forward to seeing you all tomorrow and just want to wrap up by saying Marie darling you are my bell take care folks and have a great rest of the afternoon