Has the great honor of being a Trustee been bestowed upon you?

Congratulations – I think. One of the most important decisions that an individual will make when establishing an estate plan is the selection of a Trustee. Serving as an individual Trustee can be rewarding, as you are helping to preserve and maintain a family’s wealth for many, many years. However, it is extremely important to have the necessary skills to handle administering a trust. As a Trustee, you now have a fiduciary responsibility and with that comes liability.

Can you confidently answer the following questions?

• Are you able to fulfill your fiduciary responsibilities as Trustee?  This entails meticulous record keeping, custody of assets, investment of trust assets, tax return preparation, and ongoing communication with beneficiaries and decisions regarding discretionary distributions to beneficiaries. You are managing assets for the ultimate benefit of someone else – that is scary!
• Do you have the resources to provide accurate record keeping? The Trustee is typically required to furnish an accounting on an annual basis to the beneficiaries. Therefore, you must keep track of all income, distributions, and expenditures from the trust.
• Will you be able to custody and properly invest the assets? You are responsible for the assets of the trust. You have a duty to make prudent investments or employ a specially trained person to manage investments that consider the interests of the current and future beneficiaries alike.
• Are you prepared to make the right decisions on distributions? You will have to decide what distributions you will make when requested by the beneficiaries. You will have to consider the beneficiaries’ other sources of income along with his or her needs. You will also need to be able to say “no” if a distribution is not for the well-being of the beneficiary or consistent with the terms of the trust. You may have some aggressive beneficiaries and they may actually be related to you!
• Do you know how to pay taxes for the trust? You will have to file an annual tax return called a Fiduciary Return in order to pay taxes for the trust, so make sure you keep accurate records!
• How will you avoid Trustee liabilities? If the Trustee is negligent, he/she may be fined for negligence. An example is failure to file tax returns, this will result in penalties and interest for failure to file the returns, to be borne by the Trustee. Another example is failure to invest the trust property. This will subject the trustee to liability on the uninvested funds. 

CNB Can Help

After considering the questions above, you may feel overwhelmed by the substantial responsibility that a Trustee carries. Please do not hesitate to seek professional advice whenever questions arise. At Canandaigua National Bank & Trust, our team of fiduciary professionals average over 20 years of experience in trust and estate management. We would be more than happy to discuss any questions you may have or how we can assist you in fulfilling your fiduciary duty as a Trustee and limiting your liability.

Call us today at (585) 419-0670.