The Case for a Professional Trustee

Trusts are mismanaged on a regular basis. There are a lot of ways this can happen. Bad investments, expenses that are too high and poor tax decisions are just a few of the most common.

But one flavor of mismanagement that I think happens often, and doesn’t get enough attention, is blatant abuse. In other words, theft — by a trustee.

 Theft is almost impossible to stop

 Theft is so blatant and obvious of an infraction that it is often overlooked as something to take into serious consideration when creating the trust. Prudent investing, tax minimization and reducing management expenses can seem like much more serious challenges to address.

No matter what a trust says, no matter how carefully it is drafted, a trustee that just helps him- or herself to the money is almost impossible to stop. This is usually a family member who feels they have a justified reason to access the money.

The recourse would be to sue the trustee. But this is a big problem if the trustee is a family member (often a parent of the beneficiary who has been robbed).  And even if the aggrieved party sues and wins, the money is usually gone already, anyway.

 Oversight is essential — and often absent

The “who” of the trust is the most important part. Is this person completely trustworthy, even under tough circumstances?  Will they work diligently to make sure the purpose of the trust is carried out?  Unless there is a professional trustee, there is rarely anyone looking over the trustee’s shoulder to make sure they are doing what they should be doing.

Having well-written trusts by a competent attorney is extremely important. But always keep in mind that the words on paper are only as strong as the person appointed to carry them out.  If you are appointing friends or family as trustees and are at all unsure of their abilities, hiring a professional trustee may very likely be the best approach.

Photo by DaGoaty