When it comes to estate planning in New York State, one of the key figures involved is the trustee. A trustee plays a crucial role in administering a trust and carrying out the instructions established by the person who created it. In this article, we examine the responsibilities and qualifications of a trustee in New York and explain the trustee’s role in estate planning.
What Is a Trustee?
A trustee is an individual or authorized entity appointed to manage and oversee a trust for the benefit of its beneficiaries. A trust is a legal arrangement under which the trustee holds and administers property according to the terms of the trust document.
A trustee is a fiduciary. This means that the trustee must comply with the trust’s terms, act loyally and in good faith, and fulfill the duties imposed by applicable law. The precise responsibilities of a trustee depend on the language and purpose of the trust.
Responsibilities of a Trustee in New York State
- Trust administration: A trustee must administer the trust according to its terms and applicable law. This may include collecting and safeguarding assets, paying appropriate expenses, making authorized distributions, and handling necessary documents or legal filings.
- Investment management: Unless the trust document lawfully provides otherwise, a trustee must manage trust investments under New York’s prudent-investor standard. The trustee must exercise reasonable care, skill, and caution while considering the trust’s purposes, distribution requirements, beneficiaries, risk-and-return objectives, and overall portfolio.
- Recordkeeping and accounting: A trustee should maintain accurate records of trust income, expenses, investments, and distributions. Depending on the trust and applicable law, the trustee may also be required to provide information or an accounting to beneficiaries or a court.
- Tax compliance: A trustee may be responsible for obtaining tax advice, filing required tax returns, paying taxes from trust property, and supplying tax information to beneficiaries. The requirements depend on the type and terms of the trust.
- Impartiality: When a trust benefits more than one person or class of beneficiaries, the trustee generally must consider their respective interests and avoid improperly favoring one beneficiary unless the trust permits it.
- Communication: A trustee may need to communicate with beneficiaries, professional advisers, financial institutions, and other parties involved in administering the trust.
Who May Serve as a Trustee in New York?
A trustee may be a natural person or an entity legally authorized to act as a fiduciary, such as an eligible bank or trust company. The rules that apply can depend on the type of trust, whether court-issued letters are required, and the circumstances of the proposed trustee.
For court appointments governed by New York’s Surrogate’s Court Procedure Act, certain people may be ineligible to receive fiduciary letters. These can include minors, people who have been judicially determined to lack the required capacity, certain non-domiciliary noncitizens, and people found unfit because of dishonesty, improvidence, substance abuse, lack of understanding, or similar concerns. A court may also have discretion in other circumstances.
Practical Considerations When Selecting a Trustee
- Understanding of fiduciary duties: A prospective trustee should understand that the role carries legal responsibilities and requires acting for the purposes and beneficiaries identified by the trust.
- Integrity and judgment: A trustee will often control substantial property and sensitive financial information. Honesty, sound judgment, and reliability are important qualities.
- Financial knowledge: The trustee should be capable of understanding financial information and obtaining appropriate legal, tax, accounting, or investment assistance when needed.
- Availability: Trust administration can require considerable time, organization, and attention to deadlines.
- Ability to remain impartial: A trustee should be able to administer the trust fairly and manage potential conflicts among beneficiaries.
- Willingness to serve: Before naming someone, it is helpful to determine whether that person is willing and able to accept the responsibility.
Individual and Professional Trustees
Family members and trusted friends can serve as trustees. It is also possible to appoint a professional or corporate trustee when permitted by law. A professional trustee may offer administrative experience, continuity, investment resources, and greater independence when a trust is complex or conflict among beneficiaries is a concern.
Professional trustees generally charge fees, while an individual trustee may also be entitled to compensation under the trust or New York law. The anticipated cost and complexity of administration should be considered when making the appointment.
Successor Trustees
When establishing a trust, it is important to designate one or more successor trustees in case the initial trustee dies, resigns, becomes unable to serve, or is removed. The trust should clearly explain how a successor is selected and how the transfer of authority will occur.
Naming successor trustees can reduce the possibility of an interruption in trust administration or the need for court involvement.
Trust Protectors and Advisory Committees
Some trust documents appoint a trust protector or advisory committee. The powers of such a person or committee depend on the trust’s language and applicable law. The document might authorize limited oversight, consultation, removal or replacement of a trustee, or particular modifications when legally permitted.
These arrangements must be drafted carefully. A trust protector or advisory committee does not automatically possess authority to amend a trust or direct a trustee unless that authority has been validly granted.
Reviewing a Trustee’s Performance
Beneficiaries and other authorized parties may review whether a trustee is following the trust, maintaining appropriate records, managing property prudently, making required distributions, and communicating as required.
If serious concerns arise, the trust document should be reviewed to determine whether it establishes a process for resignation, removal, or replacement. In some circumstances, a court proceeding may be required. A beneficiary should obtain legal advice before attempting to remove or replace a trustee.
Selecting the Right Trustee
Choosing the right trustee is an important part of establishing a trust. The trustee’s responsibilities can involve legal compliance, financial management, tax matters, recordkeeping, distributions, and communication with beneficiaries.
The experienced estate-planning attorneys at Cole, Sorrentino, Hurley, Hewner & Gambino, P.C., can assist with preparing a trust document, defining the trustee’s authority and responsibilities, and evaluating possible individual, successor, or professional trustees.
Contact us to arrange a consultation and discuss how a properly drafted trust and carefully selected trustee can support your estate-planning objectives.