IS THE TRUSTEE RESPONSIBLE FOR MANAGING THE INVESTMENTS AND OTHER PROPERTY IN THE TRUST?
Ultimately yes, but in some cases, this responsibility can be transferred to another person or firm.
The trustee is the CEO of the trust and is responsible for the proper administration of the trust, including:
the preservation and prudent investment of the assets in the trust
the proper administration of the trust, including the maintenance of all records and preparation of all periodic reports; and
the distribution of the assets pursuant to the terms of the trust.
Nomadx will work with the trustee and the trust’s advisors to identify resources and services that can equip trustee to manage their responsibilities.
EVERYONE IN MY FAMILY GETS ALONG SO HOW HARD COULD THE TRUSTEE’S JOB BE?
This is what most people say, but history shows the trustee can very easily find themselves in difficult situations where they are called on to balance conflicting interests among family members.
These conflicts can occur in many common situations. For example, when some manage a family owned business - but not all - of the family members, then those managing the family owned business may inevitably want the trust to maintain ownership of it. These individuals have worked their entire lives there, while other family members may want the trust to sell the family owned business, so that proceeds can be invested for a better return.
Some beneficiaries receive current income, while other beneficiaries called “remainderpersons,” receive what is left after the current income beneficiaries die. Current income beneficiaries will want the trustee to invest funds in investments that maximize income, while remainderpersons are interested in the trustee investing funds that maximize appreciation.
Nomadx Solutions’ experienced professionals can help the trustee and the trust’s other advisors analyze the trust’s terms and applicable laws so they can balance conflicting interests - and perhaps more importantly - properly document and explain their decisions to the beneficiaries.
WHAT IS THE DIFFERENCE BETWEEN A TRADITIONAL, DIRECTED AND DELEGATED TRUST?
This difference is one of the most important, yet often one of the least understood, aspects of the law governing trusts:
In a traditional trust, the trustee is responsible for the preservation and investment of the trust assets.
In a delegated trust, the trustee can delegate the responsibility for managing the investments to a person or firm that may be more qualified to make day-to-day decisions regarding the investments (e.g., a Registered Investment Advisor or property manager). The trustee remains jointly liable for all actions taken by the designee.
In a directed trust, the trustee has the authority pursuant to statute and/or the terms of the trust to turn over sole responsibility for the preservation and management of the assets to a person or firm designated to handle these responsibilities. This means the trustee will not be responsible for any of the actions taken by the designee. Directed trusts are not authorized in every jurisdiction, and in those jurisdictions where they are allowed, the allocation of responsibilities must be described in a written instrument which generally includes the appropriate indemnifications.
Nomadx has extensive experience with all of these trusts and can assist in all aspects of selecting and properly documenting the selection of an investment advisor or property manager.
WHAT SHOULD I CONSIDER BEFORE I AGREE TO BECOME A TRUSTEE?
Being asked to be a trustee is a great honor and can be a very fulfilling and pleasant experience. However, it is a serious responsibility, so there are a number of issues to consider.
The top five things for you to consider include:
Read the trust and find out what is expected of you.
Ensure you have the skills and resources necessary to do the job. You will be responsible for preserving and investing the assets in the trust, making sure the trust is administered in accordance with the terms of the trust, and distributing the assets by the terms of the trust. Most people need help in carrying out some or all of these responsibilities.
Determine whether you have any conflicts of interest which prevent you from accepting this responsibility. Some people may have a conflict, but there are ways to deal with many of them.
Make sure you have the time to perform your responsibilities.
Determine whether you are protected if you become a party to a claim or litigation.
The Nomadx professionals have decades of experience in management of risk associated with administration of trusts and estates. Our professionals can help you, and your advisors deal with all aspects of being a trustee, including assistance with the design and underwriting of the appropriate insurance.
WHO CAN I RELY ON TO ANSWER MY QUESTIONS ABOUT THE TRUST?
You will need a team of qualified, independent professionals to help you.
Your primary advisor will be an experienced attorney with a thorough knowledge of the administration of trusts and estates. This attorney should be able to help you with interpreting the provisions of the trust, especially those that relate to distributions. Depending on your background and experience, you may also need advice regarding the custody, investment and management of the assets in the trust or estate, record keeping, accounting for trusts and estates, and periodic reporting.
The professionals at Nomadx have many years of experience in all aspects of trust and estate administration, and they can help you identify all of the resources and services you will need to carry out your duties properly and to protect yourself in the event of a dispute.
WHAT ARE THE BENEFITS (OR POTENTIAL PROBLEMS) WITH HAVING A CO-TRUSTEE?
In most cases, “two heads are better than one,” but in the case of co-trustees, that is not always true.
Although there are many cases where it is a good idea for a trust to have co-trustees, the fact that there is a co-trustee (or multiple co-trustees) does not reduce or eliminate either trustee’s obligations to the beneficiaries. Each one of the co-trustees continues to have the same duty. That can create some difficult legal issues for the trustees.
For example, most trusts provide that both trustees must agree on an action if there are two trustees. If there is a disagreement, then the action cannot be taken. If a beneficiary believes the action should be taken, he or she may use the fact that one of the co-trustees is willing to take action as evidence against the co-trustee that declines to approve the action.
Another common problem occurs when one of the trustees takes action with apparent authority to act on behalf of the trust. This could potentially put the other co-trustee in jeopardy if it turns out the action was deemed to be a breach fiduciary duty, and there is evidence the non-breaching co-trustee failed to take reasonable steps to stop the action or failed to have procedures in place to prevent the action. At a minimum, the non-breaching co-trustee in these cases is likely to become a party to the litigation and will be forced to incur legal fees and other costs to defend their actions.
Nomadx Solutions’ professionals have many decades of experience dealing with these issues and can give the co-trustees, and their advisors access to numerous resources and services that will help them deal with these complex issues, including insurance and other risk mitigation tools.
HOW CAN I PREPARE MYSELF TO TAKE ON THE ROLE OF TRUSTEE?
After you have agreed to become a trustee, there are several things you can do to prepare yourself:
Read the trust and talk to the people involved with the creation of the trust to determine what is expected of you.
List the “risk factors” that are present and create a plan to mitigate or eliminate those risks.
Identify the resources available to protect you in the event there is a claim or litigation involving your actions as trustee.
Nomadx can conduct a detailed risk analysis of any trust or estate and provide a written “Risk Assessment” to you which identifies all risks and sets forth the “best practices” that can be implemented to mitigate or eliminate those risks. We can also assist you in designing and underwriting insurance that will protect you.
CAN I PURCHASE INSURANCE FOR MY TRUSTEE LIABILITY?
Yes. There are several insurance policies available to trustees and other fiduciaries. However, many of these policies have significant gaps in coverage and may not provide adequate protection. In addition, since this product is designed for a relatively small market, there are not many insurance brokers who specialize in the sale of these policies or thoroughly understand the risks faced by trustees and other fiduciaries. This market is a difficult one for many carriers to service because each private trust and estate is an outlier, so it is difficult to identify and underwrite the risks present in each situation.
Nomadx was established for the sole purpose of identifying, mitigating and transferring fiduciary risk. This is our only business, and to the best of our knowledge, Nomadx is the only company of its kind. The insurance professionals at Nomadx thoroughly understand the risks faced by fiduciaries and are ideally suited to design and place insurance for each situation.
HOW DO I DETERMINE WHAT TYPE OF INSURANCE TO BUY AS A TRUSTEE?
As is the case with most insurance, the only way to determine this is to consult with a qualified insurance broker.
There is no easy way to describe the insurance required in any given situation. It’s important to consult with a specialist insurance broker who has the experience and knowledge to understand the risks present in each situation and has access to the underwriters and carriers who will issue the appropriate policy.
The Nomadx insurance professionals specialize in the design and placement of liability insurance for fiduciaries. That is their only business. They do not sell any other kind of insurance products. You can rest assured that they understand the risks you face as a trustee and that they have access to the top underwriters and insurance carriers who can issue a policy that is perfect for your situation.
WHAT FALLS UNDER THE DEFINITION OF BREACH OF FIDUCIARY DUTY?
A fiduciary duty is the highest recognized under the law. It describes the duty a trustee owes to a beneficiary of the trust or the duty a personal representative of an estate owes to the beneficiary.
The law applies this duty to a fiduciary because this individual is in possession of - and has dominion or control of - the property held exclusively for the benefit of a beneficiary. The law is designed to protect the interests of a beneficiary since they are not in a position to act on their behalf, and they do not have the power to control their assets. This duty is much higher than one that a person owes to a stranger or themselves. A person can make many investments or take many actions on their behalf that would not be allowed if they were acting as a fiduciary.
Nomadx Solutions’ professionals understand this concept and are well equipped to help the trustee and his or her advisors successfully navigate what can often be complicated matters.
HOW LONG DOES IT TAKE FOR YOU TO COMPLETE A RISK ANALYSIS?
The length of time to complete can vary depending on the complexity of the trust, estate, and jurisdiction, but in most cases, Nomadx can provide a detailed written “Risk Analysis” within 15 business days.
HOW LONG DOES IT TAKE TO GET AN INSURANCE POLICY?
Nomadx can usually provide a description of the coverage and a premium quote within 15 business days, and the policy can be bound as soon as the applicant makes their decision to purchase the insurance.
How do I get insurance? What is the process?
The process to receive an insurance policy is not difficult. Complete the application provided by Nomadx Solutions and submit the application along with the requested additional information. We will do the rest.
Some things to consider when obtaining insurance:
How large a Limit of Liability do you want?
What is your risk tolerance?
How large of a deductible will you consider?
Do I have to buy all levels of your offered services?
No. You know best what you need, so you make that decision.
WHAT DO I GET ON EACH LEVEL OF YOUR SERVICES?
Risk Analysis: This detailed written report lists all identified risks and best practices that can be implemented to mitigate or eliminate each risk.
Mitigation: Nomadx will assist in developing a comprehensive plan (Map) to implement the best practices identified in the written Risk Analysis. Our experts are also available to perform larger projects for trust companies, professional trustees, professional firms and others who may need assistance involving the analysis of their risk. Most importantly, Nomadx can independently certify the successful implementation of recommended best practices which can not only assist management but also reduce insurance costs.
Periodic Check-Ups: Nomadx is available to perform periodic check-ups upon request. These can include any changes implemented during the year to ensure items are being tracked, managed appropriately and inserted in the project management plan.
Insurance Policy: All insurance policies are underwritten and issued by a top, highly rated insurance companies. The policy and company are recommended by Nomadx based upon the client’s needs, requirements and the underwriter’s risk tolerance.