The 3 Habits of Highly Effective Trustees and Executors
Estate disputes can be triggered by the lack of effective estate planning. I recently wrote about 10 estate planning steps to help avoid family inheritance disputes.
Conflict can also be caused by problems that arise during administration of a trust or estate.
Trustees and executors face a laundry list of administrative tasks to address — collecting assets, settling debts, filing tax returns, etc. Facing these daily tasks, trustees sometimes make the mistake of focusing only on details and missing the forest for the trees.
With that in mind, here are 3 basic habits that can serve as guiding principles for trustees (also generally applicable to estate executors) to keep in mind during the trust and estate administration process:
1. Read (and re-read) the Trust and/or Will
“Read, read, read.” – William Faulkner
I sometimes get an initial inquiry from a prospective client (either the trustee or a beneficiary) about whether the trustee can or should do something. Almost invariably my answer has to be: “it depends — I’d need to read the trust first”.
A trust is not a standard document — each instrument is unique. At its core, it is an operating agreement. In order to know how to operate, you have to read the agreement. The Illinois Trusts and Trustee Act typically provides default rules for trusts, but in most cases, these default rules can and are changed by the trust’s terms.A trustee should:
- Read the trust instrument and any amendments
- Discuss the terms with counsel and ask questions about anything that’s not clear
- Follow the terms of the trust (obvious, but worth noting)
- Understand the principles for exercising any given discretion
- Finally, re-read the trust, or key terms, from time to time
2. Communicate with beneficiaries early, often and well
“What we’ve got here is failure to communicate.” – Cool Hand Luke (1967)
It’s important to properly set the expectations of current beneficiaries from the outset. Beneficiaries sometimes have misinformation as to how estate and trust administration works. Some have the notion that beneficiaries immediately gather in the attorney’s office for a “reading of the Will” and for a handout of distributions. This is Hollywood fiction.
Beneficiaries usually want answers to two questions: when and how much. An initial communication that discloses and explains the Trust or Will, outlines a timeline and properly sets and manages expectations can be quite helpful.
Once expectations are set, update beneficiaries regarding any changes in circumstance or significant actions. Keep an open line of communication. If beneficiaries will need to sign receipts or distribution agreements prior to distributions, let them know in advance.
3. Document and keep records
“If it’s not in writing, it didn’t happen.” ~ Author Unknown
Managing a trust or estate is not unlike running a business — and you should treat it like one through copious record-keeping. At the outset, create an inventory of assets. From that starting point you can track the movement of assets, earnings, expenses and distributions. Copies of statements, transactions and receipts should be organized and retained.
Not only do you want to keep transactional records, an effective trustee or executor will document significant actions and decisions. For example, the trustee might review the portfolio of assets and decide that changes to the investment mix are appropriate. The process should be documented for future reference.
Part of documentation is keeping contemporaneous time records. If the trustee or executor is considering accepting a fee (and probably even if they are not), it’s critical to keep an updated daily time log. A reasonable fee for services is based, at least in large part, on time spent. Having time records is critical to justifying a proposed fee.
Bonus Habit: Don’t go it alone
Trust and estate administration is a team effort. A trustee or executor is entitled to hire an attorney to advise and assist in carrying out fiduciary duties. The team might also include a tax preparer, financial adviser, insurance agent, appraisers and other professionals.
Experienced trust and estate counsel can help you practice habits that will help you be highly effective and minimize disputes.
“We are what we repeatedly do. Excellence, therefore, is not an act, but a habit.”
Image courtesy of Stuart Miles / freedigitalphotos.net