You can’t evaluate what you can’t measure- and when assessing the success of any trust, proper metrics are vital. Beneficiaries should hold their trustees accountable, but so should anyone with a stake in the success of the trust, be it a grantor or a family review board.
There are four standard accountability measures that should be considered when evaluating trustee performance:
- Identifies potential sources of conflict
- Avoids situations in which there is potential for a conflict of interests
- Wears only one hat
- Hasn’t hired any related agents/advisors to provide trust services
- Considers the needs of all trust beneficiaries
- Communicates with beneficiaries on a regular basis
- Customizes the asset allocation
- Uses a consistent method of determining distributions
Prudent investment of assets
- Reviews the trust instrument and initial assets promptly upon acceptance of the position
- Develops a written investment policy
- Considers special circumstances that might justify retention of a particular position
- Schedules regular portfolio reviews
- Makes timely and tactical adjustments
- Provides a copy of the trust investments to beneficiaries
- Complies with any notice requirements under the Uniform Trust Code or state statutes
- Schedules regular meetings with beneficiaries to review investment strategies and implications for the trust
- Distributes statements summarizing trust assets’ market valuation, income, and expenses
The standards outlined above cover the most essential duties of a trustee and a trustee’s success depends on a firm understanding of these duties and expectations. Unfortunately, far too often grantors, trustees, and beneficiaries enter into trusts without a full understanding of how they impact the arrangement’s success. Despite trusts wide use as a wealth transfer vehicle, there is very little formal education available on how to select a trustee or prepare one for the responsibilities of the role. Beneficiaries rarely understand what they can do to ensure the success of the trust and collect the money left to them.
It is important to remember that trusts are a long-term commitment and their successful outcome requires open communication, preparation and cooperation on the parts of all involved.
Author: Mariann Mihailidis, Managing Director, Councils, Family Office Exchange
Contributor: Family Office Exchange