TRUSTEES, SPECIAL TRUSTEES, AND TRUST PROTECTORS: WHO THEY ARE AND WHAT THEY DO

Persons entrusted with the operations of a Trust must be very carefully selected. Trustees are not usually subject to court supervision (unlike executors in court supervised probates). Trustees, and Special Trustees and Trust Protectors are the persons entrusted with the proper implementation of a Trust in a managerial or oversight capacity. Anyone establishing a Trust needs at least to be knowledgeable about who Trustees are, what they do, and how to select them. This is because the Trustee will have control over the Trust assets and responsibility for its day-to-day operations. Sometimes, one may also need to know about Special Trustees and Trust Protectors.

Every Trust must have at least one Trustee. It is normally desirable and sufficient to just have one Trustee in order to avoid Trustee deadlock, and the accompanying extra costs and complexity associated with having multiple Trustees (who must each sign-off jointly on decisions). The Trustee owns legal title to the Trust assets in a so-called “fiduciary capacity”. That is, the Trustee as owner safeguards, controls, and invests the Trust assets. They also file Trust tax returns and pay taxes (if the Trust is Irrevocable). Their ultimate role is to use and distribute Trust assets pursuant to the Trust’s own terms. They may have discretionary powers about payments to the beneficiaries. They are accountable to the beneficiaries for their actions and inactions.

A Trustee can either be a non-professional person (e.g., family member or friend), or can be a professional Trustee, such as a private fiduciary or a bank’s Trust department. If you select a non-professional person then you need to be especially sure that they are trustworthy, responsible. They also need to be capable of working with the professionals they will need hire (attorney, tax preparer, real estate agent, appraisers, etc.), and that they can communicate with the beneficiaries fairly and effectively. Otherwise avoidable problems may arise when the Trustee does not have the confidence and cooperation of the beneficiaries.

Professional Trustees come in a wide variety, including private individuals who are trained and licensed to act as Trustees, to Trust management companies (including banks) of varying sizes. Typically banks require liquid assets of over $500,000 (and sometimes over $1 million) before they will become involved. They then charge a percentage of the value of the Trust estate for their investment and management services. Also, the Trust departments of these banks will be located in major cities (not Lake County).

If a suitable non professional trustee is unavailable then a private fiduciary should be considered and interviewed for suitability. That is: How do they charge? How available are they to the beneficiaries? What is their qualification? Who are their back-ups when they are away? Who do they use for investment advice? Are they well suited to work with the type of beneficiary in question?

A Special Trustee is someone who is entrusted with exclusive Trust powers over a particular Trust asset. The most common reason for a special Trustee is when there is a professional practice (e.g., a doctor’s practice). For example, a professional medical corporation that is owned by a Trust can only be owned by a licensed physician. So, while the surviving non-licensed spouse may be the Trustee another person who has the required license would be the Special Trustee who winds-up the affairs of the practice, sells the practice assets and transfers the net cash proceeds into the name of the Trustee.

Lastly, a Trust protector is a “Super Trustee”. Unlike the Trustee, he or she is not involved in the day to day management of the Trust assets, but is empowered to oversee the Trustee; to replace the Trustee; and, sometimes, to petition the court to amend or reform the Trust document. Usually the Trust Protector is a trusted family member. Trust protectors are commonly seen in Special Needs Trusts for disabled persons; and also in irrevocable discretionary Trusts where the Trustee (usually a professional) has complete discretion as to whether or not to distribute assets to the beneficiary. The Trust Protector oversees that the Trustee acts appropriately and, if not, can replace the Trustee.

Editor’s Note: Dennis A. Fordham is an attorney licensed to practice law in California and NewYork. He earned his BA at Columbia University, his JD at the State University of New York at Buffalo,and his LL.M in Taxation at New York University. He concentrates his practice in the areas of Estate Planning and aspects of elder law. His office is at 55 1st Street, Lakeport, California. He can be reached bye-mail at dennis@dennisfordhamlaw. com or by phone at 707-263-3235.