A trustee has two important duties – managing the assets in the trust, and distributing them to the beneficiaries according to the donor’s wishes. But it can be hard to find one person who can do both things well. An aunt or uncle might be the perfect person to know how to distribute assets to family members, but might not have a lot of financial acumen. An investment advisor might be very skilled at growing the assets, but not have a deep understanding of the donor’s values and preferences and beneficiary’s needs.
So you might want to have two trustees and divide the duties – put one in charge of investments and another in charge of distributions.
Some 35 states now have “directed trust” laws, which have an added benefit. These laws say that if the investment trustee makes a mistake or does something wrong, the distribution trustee can’t be sued by the beneficiaries.
Here’s a good example of why this is important. Suppose a trust is set up that contains a lot of stock in a family company. The understanding is that the trust will hold onto the stock over time. After a while, though, things go badly for the company, and the heirs are upset because the value of their trust has declined significantly.
The heirs might want to sue the advisor for not diversifying the trust’s holdings, or for voting the family stock in a way that hurt the company. Traditionally, both trustees could potentially be liable for these types of losses. But under a directed trust law, the distribution trustee might be legally off the hook if he or she didn’t participate in the financial decisions.
Without such a law, some friends or family members might be very reluctant to take on the role of a distribution trustee at all.
If you’re thinking of setting up a trust with divided roles, this is definitely something to discuss with an experienced estate planning attorney such as us at Ericson, Scalise & Mangan, PC.