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Trustee Discretion – How to Avoid Too Much or Too Little

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At some point, you will likely need to add to your estate plan to ensure that your plan will achieve your ever-expanding list of estate planning goals. One of the tools you may choose to incorporate into your estate plan is a trust. Trusts have become increasingly popular, due in large part to the flexible nature of a trust. When creating your trust, you should focus on how the trust will be administered. This starts with your choice of Trustee. You will also need to decide how much discretion your Trustee should have. The Essex Junction trust attorneys at Unsworth LaPlante, PLLC discuss how to avoid giving your Trustee too much or too little discretion.

Trust Basics

A trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor, also called a Maker, Grantor, or Trustor who transfers property to a Trustee chosen by the Settlor. The Trustee holds that property for the trust beneficiaries.  All trusts can be broadly divided into two categories – testamentary or living (inter vivos) trusts. Testamentary trusts are typically activated by a provision in the Settlor’s Last Will and Testament and, therefore, do not become active during the lifetime of the Settlor. Conversely, a living trust activates during the Settlor’s lifetime. Living trusts can be further sub-divided into revocable and irrevocable living trusts. If the trust is a revocable living trust, as the name implies, the Settlor may modify or terminate the trust at any time.

What Does a Trustee Do during the Administration of a Trust?

Choosing your Trustee is one of the most important, and often most difficult, decisions you must make when creating a trust. This is also where people frequently make their biggest mistake by appointing a spouse, family member, or close friend without taking the time to consider whether that person is really qualified for the job. The overall job of a Trustee entails managing the trust assets and administering the trust terms. That requires a Trustee to do things such as:

  • Protecting trust assets
  • Abiding by the trust terms unless they are impossible, illegal, or unconscionable
  • Investing the trust funds using the “Prudent Investor Standard”
  • Monitoring trust investments
  • Communicating with trust beneficiaries
  • Resolving conflicts among beneficiaries
  • Making discretionary decisions (if the trust allows)
  • Distributing trust funds to beneficiaries
  • Approving or denying requests for distributions if given discretionary authority
  • Keeping trust records
  • Preparing and paying trust taxes

Discretion — Getting It Just Right

Given the nature of the Trustee’s job, some discretion is almost always necessary. The issue is how much discretion a Trustee should have, not whether to grant any discretion at all. As the Settlor of the trust, you effectively decide how much discretion to give your Trustee through the trust terms you create. To a large extent, the type of trust you create coupled with your trust purpose will dictate how much or how little, discretion your Trustee needs to successfully administer the trust. For example, if you are creating a testamentary trust to guard assets for your minor children, the Trustee will likely need a significant amount of discretionary authority to accommodate the unforeseen changes that will occur as your children grow up. On the other hand, if you create an irrevocable living trust for the purpose of protecting assets, your Trustee won’t likely need much discretion given the nature and purpose of the trust. To make sure you do not give your Trustee too much or too little discretion, be sure to discuss the issue at length with your trust attorney when you create your trust terms.

Contact the Essex Junction Trust Attorneys

For more information, please attend one of our upcoming FREE webinars. If you have questions or concerns about establishing a trust or deciding how much discretion to give your Trustee, contact the experienced Essex Junction trust attorneys at Unsworth LaPlante, PLLC by calling 802-879-7133 to schedule your appointment today.

Stephen Unsworth
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