When creating a trust, the designation of trustee is among the most important decisions the trustor makes. As a fiduciary, the trustee has significant responsibilities on behalf of beneficiaries—but may not necessarily have deep financial, investment or other relevant, technical skills. Delegation of expertise, via a directed trust, can be helpful.
Delegation of Duties
A trustee is a person entrusted with assets intended for the benefit of others. Specifically, as Investopedia explains: “A trust is a fiduciary relationship in which one party, known as a trustor, gives another party, the trustee, the right to hold title to property or assets for the benefit of a third party, the beneficiary.” Essentially, the trustee manages the trust, in accordance with the intentions laid out in the trust agreement. Attorneys advise trustors and trustees to ensure the trust agreement, has significant detail and clarity to serve as an “instruction manual” for the trustee.
Of course, sometimes a trustor’s ideal trustee, such as a family friend or relation, may not have experience with financial issues, investment decisions and other technical matters that could impact the assets in the trust, and ultimately the well-being of beneficiaries. On the other hand, sometimes potential trustees with these areas of expertise may not want or be able to take on the day to day duties of a trustee. As the American Bar Association explains, allowing “a person or entity, other than the trustee, a power over some aspect of a trust’s administration” provides the trustor with different options for setting the trust up for success.
Sometimes referred to as a “trust protector,” “trust advisor,” or “trust director,” this designee can be assigned a specific role. For example, the trustor can delegate the “authority to direct only the investments of the trust and instruct the trustee to delegate these directed tasks to the …chosen investment advisor.” Another example is the designation of “a trust protector…who can be given the power to remove and replace the trustee. A trust protector can also be given the power to add beneficiaries or to even amend or terminate the trust in limited situations (subject, of course, to state and federal laws governing such powers).”
No matter how the trust is arranged, the trustee has a fiduciary obligation to the beneficiaries—and must always exercise reasonable care and skill in managing the assets of the trust. Toward that end, experts advise trustees to:
- Periodically assess the policies, procedures and guidelines being used by investment managers.
- Maintain and document regular communication with beneficiaries.
- Keep a written record of decision-making rationale.
Given the significant fiduciary duties undertaken by a trustee, the trust agreement may require a trustee bond— a specific type of fiduciary bond—which protects the interests of the trust and its beneficiaries in accordance with applicable state law. Essentially, trustee bonds guarantee the faithful performance of the trustee. As a leading national provider of many types of fiduciary bonds, Colonial Surety makes it easy and efficient to obtain a trustee bond. Just get a quote online, fill out the information, and enter your payment method. Print or e-file the bond from anywhere—even the law office.
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Good To Know
According to the American Bar Association, the Uniform Directed Trust Act (UDTA), is currently in use in some form, by 15 states, to provide “clear, functional rules that allow a settlor to freely structure a directed trust for any situation while preserving key fiduciary safeguards for beneficiaries.” Examples of UDTA provisions include: “sensible default rules for a variety of matters that might be overlooked in the drafting of a directed trust, including information sharing among trustees and trust directors, the procedures for accepting appointment as a trust director, [and] the distinction between a power of direction and a nonfiduciary power of appointment.”
Whenever and wherever any any court or fiduciary bond is required, lawyers and their clients rely on Colonial Surety’s efficient online service to quickly obtain a quote, make the purchase and then instantly print or e-file the bond. Colonial’s fiduciary bond portfolio includes: administrator, estate, executor, guardian, personal representative, probate, surrogate, trustee and more. We have a full array of court bonds too. As a direct bond writer, licensed for business in every state, Colonial meets the specific requirements of obligees. Our pricing is exceptionally reasonable— there are never any “middle” fees—and you’ll also avoid the delays of shuffling around.
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