Advice to Trustees: Get Along With Beneficiaries

When you've been chosen to act as the trustee of a trust, you must handle both money and people. You might be more worried about the financial part, but the people may prove to be the greater challenge. Your job as trustee will be infinitely easier (and you'll be far more effective) if, right from the start, you have cordial dealings with the trust beneficiaries—the people who benefit from the trust money. Here are some tips. (For basic information on serving as a trustee, see Trusts: Should You Serve as Trustee?)

• Communicate Well and Often With Beneficiaries
• Get in Touch Early With Beneficiaries
• Stay in Touch With Beneficiaries
• Show Beneficiaries the Trust Terms
• If You're Both the Trustee and a Beneficiary of the Trust
• When a Trustee Must Override a Beneficiary
• Getting Additional Help as Trustee of a Trust

Communicate Well and Often With Beneficiaries

Most beneficiaries are unfamiliar with the trust administration process and anxious about their lack of control. This combination is the perfect recipe for fear and paranoia. You may be doing everything right from a technical standpoint, but if the beneficiaries don't know what you're doing—or why you're doing it—you're not likely to get their cooperation or support. And, without it, your job is likely to take longer and be more difficult than it needs to be.

The best way to relieve beneficiaries' concerns is to:

• get in touch with the beneficiaries early
• educate them about your role
• help them to form realistic expectations of how long it will take to administer the trust
• treat their questions as opportunities to engage them (rather than as annoying intrusions), and
• don't hide the trust document or assets from them.

You are required (by law) to keep beneficiaries reasonably informed about how trust assets are being managed. Some states require you to send specific kinds of notices and information to the beneficiaries on a regular basis. Think of these requirements as the minimum you should do. You'll do better if you exceed these requirements and make sure that all the beneficiaries know exactly what the trust owns and what you're doing with the assets. The more transparency there is during a trust administration, the happier the beneficiaries should be.

Get in Touch Early With Beneficiaries

If the beneficiaries all live nearby, a good way to start might be to call a family meeting and sit down together to go over the process of trust administration. You can answer beneficiaries' basic questions about the trust and its terms and give them an overview of what must happen before you can hand over the trust assets to them. Limit the scope of the meeting to a discussion of what the trust instrument says and how trust administration works.

The attorney who's helping you in your role as trustee can also be at that first meeting (for more about whether you should hire an attorney, see The Trustee's Job: The First Six Months). The attorney can answer questions about the trust and your responsibilities. But beneficiaries need to understand that the lawyer is there to represent you in your capacity as trustee and that the attorney cannot give the beneficiaries legal advice. Unhappy beneficiaries can get their own attorneys to help them advocate for them in the trust administration process—though if you keep them informed and engaged, they shouldn't need to.

If a face-to-face gathering isn't practical, send each beneficiary a letter to notify them that you are the trustee, give your contact information, and provide an overview of the trust administration process. This letter should be in addition to whatever notices your state law requires.

Stay in Touch With Beneficiaries

Whenever you take an action as trustee or discover information that affects the beneficiaries, be sure to let the beneficiaries know about it. You have a legal duty to give the beneficiaries information that they might need to protect their interests. You'll be providing regular written reports (called "accountings") that detail all financial transactions, but it's a good idea to keep informal lines of communication open, too. A short email that tells the beneficiaries that you've gotten an offer on some trust real estate you want to sell or the troubles you've been having with liquidating a brokerage account will let the beneficiaries know what's happening—and that you're keeping them in mind.

If you think a beneficiary might second-guess you in the future—for example, you want to sell some stock owned by the trust but know a beneficiary wants to hang onto it—it might be prudent to go a step further and ask for the beneficiaries' approval before you act. In most states, if beneficiaries consent in writing to a proposed activity, they can't later sue you if the decision turns out to have been a mistake. If a beneficiary objects to something you've proposed, you can go to the local court and ask the judge what to do.

Show Beneficiaries the Trust Terms

In some states, beneficiaries have the right to see a copy of the trust document itself. In other states, beneficiaries don't have a legal right to see the whole trust instrument, so if you wish, you can give them only enough information for them to safeguard their interests. You might decide to disclose only the provisions that apply directly to a particular beneficiary.

In many cases—such as when all siblings are receiving an equal share of the trust—it may make sense to give each one a full copy of the trust instrument itself, even if it's not required by state law.

But in some situations, sharing the whole trust document with all the beneficiaries can trigger bad feelings. If one beneficiary's share is being kept in a trust because of that beneficiary's past inability to manage money, or if one beneficiary is receiving more than others, you might not want to offer the entire trust instrument. You can provide it if a beneficiary asks you for it.

If You're Both the Trustee and a Beneficiary of the Trust

Can a trustee also be a beneficiary of the trust? In fact, it's quite common to be both a trustee and a beneficiary of a trust. The surviving spouse, for example, is almost always both the successor trustee and beneficiary of a family trust. And it's quite common for one adult child to be the trustee and all the siblings as well as the trustee to be beneficiaries of their parents' trusts. This can be a difficult position because, as the trustee, it's your job to be fair to everyone and never to benefit yourself at another beneficiary's expense.

If you're in this position, don't be sloppy just because everything's in the family. When it comes to record keeping and decision making, pretend you don't know the beneficiaries—treat them as you would strangers, not your siblings or children. That means being sure to:

• keep very good records
• never use trust assets for your own use, and
• if you pay yourself compensation, be prepared to justify what you've charged and what services you provided to the trust.

When a Trustee Must Override a Beneficiary

Don't feel that you must give in to every request that a beneficiary has. You might wonder what a trust beneficiary's rights are. If—despite all of your efforts to stay on good terms with the trust beneficiaries—a beneficiary's request doesn't match the instructions laid out in the trust document, you must override the beneficiary and follow the trust document.

A trustee does have a fiduciary duty to the trust beneficiaries. This means as trustee, you must always act in good faith and in the interest of the beneficiaries. But it also means you should not put one beneficiary above others, and you should never do anything that conflicts with the trust document. If you're not sure whether a beneficiary's request complies, seek the help of a trusts and estates lawyer.

Getting Additional Help as Trustee of a Trust

Serving as trustee of a living trust can be intimidating, but as long as you are organized and conscientious and seek help when you need it, you'll be just fine. For a step-by-step guide to everything you need to know to manage a trust, the book The Trustee's Legal Companion by Liza Hanks and Carol Elias Zolla (Nolo) is a very helpful resource.

If you need the help of a lawyer, find an experienced estate planning lawyer near you.