Absolutely, a trustee not only *can* hire professionals to manage trust assets, but in many cases, they have a fiduciary duty to do so, particularly when the assets require specialized knowledge the trustee lacks.
What qualifications does a trustee need?
Often, individuals named as trustees are chosen for personal reasons – they’re family members or close friends – not necessarily for their financial expertise. According to a recent survey by the American Academy of Estate Planning Attorneys, approximately 60% of trusts are administered by non-professional trustees. This is where hiring professionals becomes crucial. A trustee’s primary responsibility is to act in the best interests of the beneficiaries, and that includes seeking expert advice when needed. This could involve financial advisors, investment managers, real estate professionals, accountants, and even attorneys specializing in trust administration. Failing to do so could be a breach of fiduciary duty, leading to legal repercussions and financial loss for the beneficiaries. Consider the example of a trust holding a significant amount of rental property; a trustee unfamiliar with property management could easily make mistakes leading to vacancies, poor maintenance, and ultimately, reduced income for the beneficiaries.
How much can a trustee spend on professional fees?
The amount a trustee can spend on professional fees is governed by the terms of the trust document itself and by state law. Generally, reasonable expenses incurred in the proper administration of the trust are permissible. However, “reasonable” is a key word. Trustees must keep meticulous records of all expenses and be able to justify them if challenged by a beneficiary or a court. Often, trust documents will specify a percentage of the trust assets that can be used for administrative expenses. In California, for example, trustees are generally entitled to a reasonable commission based on the value of the trust assets, as well as reimbursement for reasonable expenses. It’s important to note that excessively high fees or unnecessary expenses could be considered a breach of fiduciary duty. I once had a client, old Mr. Henderson, whose daughter served as trustee. She hired a high-end financial advisor with hefty fees, even though a more cost-effective option existed. The beneficiaries challenged this, and the court sided with them, reducing the fees significantly.
What happens if a trustee makes a bad investment?
A trustee isn’t liable for honest mistakes or losses that occur due to market fluctuations, as long as they’ve acted prudently and in good faith. However, they *are* liable for losses resulting from negligence, recklessness, or a breach of their fiduciary duties. The “prudent investor rule” dictates that a trustee must exercise the same degree of care, skill, and caution that a prudent person would exercise in managing their own property. This means diversifying investments, considering the risk tolerance of the beneficiaries, and seeking professional advice when necessary. According to a study by Cerulli Associates, approximately 25% of estate plans fail due to improper asset management. I recall a case where a trustee, without seeking professional guidance, invested a large portion of the trust’s assets in a single, highly speculative stock. The stock plummeted, causing significant losses for the beneficiaries. The trustee was held personally liable for the losses, and the beneficiaries recovered a substantial portion of their funds through litigation.
What if the trust document restricts the trustee’s ability to hire professionals?
Occasionally, a trust document may contain provisions limiting the trustee’s ability to hire professionals or requiring specific approvals before incurring certain expenses. These restrictions must be carefully followed. However, even if the trust document is restrictive, a trustee may still be able to seek court approval to hire professionals if it’s in the best interests of the beneficiaries. Consider the story of Mrs. Davies, whose husband’s trust document strictly limited trustee fees. The trust held a complex business interest requiring specialized valuation. Mrs. Davies, as trustee, was hesitant to hire an expert, fearing exceeding the permitted fees. She contacted me, and we petitioned the court for approval to hire a qualified business appraiser. The court granted our request, recognizing that a proper valuation was crucial to maximizing the benefit for the beneficiaries. Ultimately, a thorough understanding of the trust document and applicable state law is essential for any trustee seeking to hire professionals. A proactive approach, coupled with sound legal counsel, can help ensure that the trust is administered effectively and in accordance with the grantor’s wishes.
Who Is Ted Cook at Point Loma Estate Planning Law, APC.:
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