Betraying someone’s trust is considered one of the most serious offenses that a person can commit. Though it is rare, there are true stories of family members or friends attempting to steal trust assets or abusing their position as trustee in real life.
The more likely scenario is that the trusted person maintains the trust to the best of his or her ability, but does not have the capacity to fulfill the many obligations associated with being a trustee.
Before naming a family member or friend as a trustee, consider that:
It’s not so easy to remain impartial when a request comes in for funds, even when the trust directs preservation of principal.
It’s not so easy to handle all the administrative paperwork every time distributions are made or the investment decisions are implemented.
It’s not so easy to justify the cost of the labor of trusteeship to beneficiaries when you are related to them.
It’s not so easy to know what to invest in when there can be additional liability associated with the choices made.
Even with the best of intentions, amateur trustees often don’t have the time or expertise to do the job properly because it’s their first time and they have their own lives to live. The trust is not abused, but the goals of the trust are not realized.
Trust officers, like the ones at Arvest, can step in to make it easy. Trust officers are professional fiduciaries, so they can handle the entire job of trusteeship, or only the parts a client deems appropriate by being the agent of the trustee.
What does it mean to be a professional “fiduciary”?
The fiduciary standard is the highest legal standard that can be applied for financial services. It entails the duty of loyalty, or putting the client’s interests above their own.
When trust officers act as trustee for a client, they have many other duties they are legally obligated to perform. Here are some of the more common duties a trustee owes its beneficiaries, regardless of whether that trustee is an amateur or a professional:
- Duty to administer a trust by its terms. Every trust agreement should make plain the purposes of the trust, as they provide the critical benchmarks for evaluating the trustee’s actions.
- Duty of skill and care. A high standard of performance is required.
- Duty to give notices. Notices may concern legal rights of the trust beneficiaries, such as a power to make withdrawals, or they may cover such ministerial matters as designating a successor trustee or an agent to assist in trust administration.
- Duty to account. A written accounting of the assets, liabilities, receipts and disbursements of the trust must be provided to the beneficiaries regularly.
- Duty of impartiality. The trustee must not favor one beneficiary over another, unless the trust document directs that providing for a particular beneficiary is a principal purpose of the trust.
- Duty to invest. Trust assets must not be left idle. In addition to making the trust investments, the trustee has a duty to diversify the investments and develop an asset allocation plan.
- Duty of confidentiality. Normally, the terms of a trust, the identity of its beneficiaries and their respective interests, and the nature of the trust assets cannot be disclosed to anyone except the beneficiaries and those who need such information in order to be able to administer the trust.
Why choose a professional for this job?
Given the complexities of modern trust management, one might expect that businesses, such as trust companies and bank trust divisions, would become available to meet that need.
Key qualifications that a professional can bring to the table:
- Integrity. The single most important qualification for any trustee is . . . trustworthiness. A trustee must live up to standards higher than those that prevail in everyday business.
- Investment experience. A trustee may be called upon to consider the current income needs of a surviving spouse and the capital growth needs of two children who face heavy education expenses in years to come, and then to come up with an investment program that does justice to both requirements.
- Administrative know-how. A trustee must make sure that trust assets are properly titled and safeguarded, collect income, and distribute or reinvest it as the terms of the trust direct, and perform any number of other chores.
- People skills. The ability to serve as a trustworthy financial advisor, both to the individuals who create trusts and the beneficiaries that they name, may not be a formal requirement of trusteeship, but it’s important nonetheless.
Trust officers, like the ones at Arvest, that handle this process on a daily basis can offer technical skills and financial and auditing infrastructure for the successful implementation of trust plans. It’s a truism that every family is different, and so is every trust plan. Yet all trust management is governed by the legal standards of fiduciary duty. A professional trustee will have seen a range of family circumstances, of market environments, of trust purposes and objectives.
Our trust officers would be pleased to elaborate on more potential pitfalls or on why and how trust services are utilized by average families and not just the rich and famous. Take the next step to contact an Arvest Trust Officer.
This content has been provided by Merrill Anderson and is intended to serve as a general guideline.
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