At one time, trusts were mostly thought of as a way to protect a wealthy family’s assets from their spendthrift children. While many high net-worth individuals still create trusts to help their kids manage their portion of the family’s assets – you can stipulate when and how someone can remove money from the trust – these financial vehicles are also used for other reasons, including helping support someone with a disability or ensuring a young family member receives money at a certain age.
While trusts can come in handy, setting one up requires more than just opening a trust account and writing down some rules. You also need to appoint a trustee who can ensure your wishes are carried out.
While trusts can come in handy, setting one up requires more than just opening a trust account and writing down some rules. You also need to appoint a trustee who can ensure your wishes are carried out. It tends to be a family member or a friend, but it’s not a good idea to ask just any relative – you need to appoint someone you can trust who can handle the job.
“People don’t realize how complicated the role can get,” says Christine Van Cauwenberghe, vice-president, tax and estate planning at IG Wealth Management. “You need to make sure you educate yourself and get the right assistance, or you could be open to liability.”
If you’re thinking of appointing a trustee or considering becoming one yourself, there are a host of things to consider. We asked Van Cauwenberghe about what potential trustees need to know.
What does a trustee do?
A trustee is given the power to manage assets on behalf of the beneficiaries. You must take close care over those assets, and act in the beneficiaries’ best interests, not your own. You have a duty to account, which means diligently keeping track of every dime earned on those assets, and how that income is distributed. A trustee who is not 100 percent sure what to do should reach out to experts such as accountants, lawyers, financial planners, appraisers or property managers for help, and can pay for those services using the funds from the trust.
What kind of time commitment is involved?
It depends on the amount of money and the terms of the trust. In some situations where the period of the trust is short, a trustee might be able to invest the assets in a very conservative portfolio until the funds are dispersed, and then move on. Other trusts, however, such as those created for beneficiaries with disabilities, might be in place for the beneficiary’s entire lifetime.
What are the pros and cons of being a trustee?
You can charge a fee for performing the duties of a trustee, although that fee is taxable. Sometimes you might not get along with the beneficiaries and could get into arguments with them. If you are negligent either in not getting the help you need or not acting diligently, you could be held liable. If, for example, you put the assets into a very volatile investment when you have a short time horizon, the beneficiaries could sue you for mismanagement.
Does a person who’s named the trustee in a will have to accept the role?
No. People sometimes think they’re doing everyone a favour by doing it – but it’s better to be honest about what you can and can’t do. If you don’t think you can do it, decline right away. Once you accept the role it can be difficult to pass it on to someone else.
In what situations would you advise clients to decline?
If they don’t have the sophistication and training, if they are not organized and able to keep records, if they don’t live close by and if it would be administratively impractical.
If you do say yes, how can you do the job effectively?
Doing it right means staying organized. You’ll also want to work with professionals, such as lawyers, accountants and financial planners.
For those looking for a trustee, why might a corporate trustee be a better option?
There are many reasons as to why you might want to hire someone who specializes in this. It can be easier to have an unbiased party oversee your wishes; some trusts are complicated and may need a professional with a finance background to understand everything; in blended family situations, where family finances can be a sensitive issue, a corporate trustee can handle the affairs without offending anyone.
If you take on the role of trustee for a friend or family member, be sure to get professional support as you do your job. Good advice can protect you, but can also ensure those getting support from a trust do as well as they possibly can.