Choice of Trustee
Dale Tamburro • March 7, 2025

CHOICE OF TRUSTEE

One of the most difficult and important tasks in preparing a trust for an individual is the selection of a trustee or trustees to manage the trust. Proper management of the trust can make a huge difference in the beneficiary's quality of life for years to come, if not for her entire life. Generally, there are three categories of trustees. Family/friends, Professional Trustees and Professionals serving as trustees (i.e... Attorneys and Accountants).


Here are seven issues I have asked them to consider in making their decision:

  1. Temperament. Personalities to avoid as Trustees include emotional, confrontational, and dogmatic. Family and friends might sound good at first but if there is a potential for conflict of interest or excessive emotions you want to weight the value of retaining family harmony.
  2. Cost. Many people fear using a professional trustee -- trust companies, banks, attorneys, accountants -- due to the cost. Professional trustees usually charge between 1.0 and 1.5% of assets under management, the fee decreasing as the trust funds increase. Over time, these costs can add up, but not nearly as much as the cost of bad management. To put these costs in perspective, they are often the same or less as financial advisors or mutual fund companies charge, and they do not take on any of the fiduciary responsibilities of trustees. Alternatively, many attorneys’ fees will be the same as their hourly fees for any client.
  3. Number. In some case, clients are comfortable simply naming their son or daughter as the sole trustee but are nervous about what that might do to their relationship with other family members. Another trustee (co-trustee) would allow them to share decision-making and responsibility (and blame, perhaps), as well as the workload. It would also provide redundancy if one of the trustees was unavailable for any reason. While it makes a lot of sense to have more than one trustee, more than three starts to get cumbersome. While any single trustee can act for the trust in terms of writing checks and directing investments, they must be carrying out the decisions made by all the trustees. Keeping everyone in the loop and making joint decisions all the time can be difficult if too many people are involved.
  4. Stability. Trusts can last a long time. Will the person you appoint be able to provide the necessary attention to the trust for years or decades? Will they be able to keep up with the often-tedious jobs of paying bills, filing tax returns, and preparing accounts? Since we cannot be certain of the answer to this question if when appointing an institution -- banks get bought and sold, sometimes with ill effect on their trust departments -- the trust must include a mechanism for changing trustees.
  5. Financial acumen. The trustee will need to manage trust investments and spending, taking into consideration the needs and interests of both current and future beneficiaries. Trying to balance their current and future needs can be difficult. They may have $1 million in trust, which seems like a lot of money (perhaps not what it used to be), but to make sure that the fund keeps growing with inflation, they need to limit their trust withdrawals to $30,000 to $40,000 a year. This may seem incongruous with so much money invested, but otherwise the buying power of the trust will diminish and ultimately the trust could fall into a "death spiral" as the beneficiary must dip into larger and larger amounts of trust principal to make ends meet.
  6. Organization. In addition to all of the factors mentioned above, at least one of the trustees needs to be very well organized in order to meet all of the trustee responsibilities -- making distributions, providing account statements to beneficiaries, reviewing investments, filing timely tax returns. 
  7. Personal touch. While cost is one reason many clients avoid using professional trustees, another is fear of working with an institution rather than an individual who personally knows the beneficiaries' situations and needs. This can be especially off-putting if the institution has experienced significant turnover in personnel. We've had cases where a parent chose a local banker to serve as trustee only to have that bank bought by a statewide bank which was bought by a regional bank which, ultimately, was bought by a national bank. In the end, the children were dealing with trust officers in another state. This is another reason it's important for all trusts to have a mechanism for changing trustees.


As you can see, neither the choice of trustee nor the chosen person's decision to accept the appointment, should be taken lightly. Each client’s decision will be made based on his unique situation, including the available family members and friends, the likely longevity of the trust, the amount of assets under management, and other factors. We find that the combination of a professional trustee who can take care of the administrative side of the trustee's role and a family member who can bring the personal touch often works best. In a practical sense, the professional trustees are more often and attorney because many of the institutionalized trusteed are either cost prohibited or decline to serve because the trust assets are too small.


Professional Trustees

For large sized trusts (commonly of $1.5 Million in non-real estate holdings), due to the complications of the trustee's role, we strongly urge clients to consider professional trustees such as trust companies, and banks. They are equipped to handle the investment, accounting and tax sides of trust operations and can do so with little risk or difficulty. They should be better equipped to fend off inappropriate requests for distributions and to deal with conflicts of interest. On the other hand, many professional trustees are ill-equipped to deal with the issues presented by beneficiaries with special needs, whether they be eligibility for public benefits or responding to sometimes frequent requests for distributions for unusual purposes. They may be more comfortable simply managing trust assets. Anyone selecting a professional trustee must ask about the prospective trustee's experience with special needs trusts and their methods for responding to these questions. 

When a large institution is serving as trustee, an inexperienced trust officer may be assigned to the account. He may have little experience dealing with special needs issues. And the person assigned may change over time as employees come and go and, in the case of many banks, as the identity of the bank itself changes from one to another. This can be extremely frustrating for beneficiaries and their families.


Attorneys as Trustees

For trusts of any significant net worth you can consider using a professional trustee such as an attorney. Attorneys don’t charge as much as institutionalized trustees and will handle much smaller trusts. Attorney also may have some history with the family especially the grantors which may aid the attorney in understanding the grantor’s purpose of having the trust. Attorney’s can also serve as a co-trustee with a family member and allow for the separation of work between trustees.


Family Trustees

Choosing family members and friends as trustees also has advantages and disadvantages. The advantage is that these are people who know and care about the beneficiary and may be able to you the trust funds to provide the greatest benefit for the person with special needs. Many clients are reluctant to give up control to an unknown third party. A further perceived advantage is that family members normally don't charge for their services. 

The reality, however, is that trustee fees - typically about 1 percent of trust assets per year, with a minimum for smaller trusts - is very reasonable given the services provided. The risk that a family member trustee will make mistakes or not be able to follow through on the basic trustee responsibilities of prudent investment and accounting are so great that the trustee fee can simply be seen as reasonably-priced insurance. Even the most skilled and responsible family member with the best of intentions may not be able to follow through on all the trustee details given the press of other matters in her life.

In short, to appoint a family member is both a large compliment and placing a large burden on her shoulders.


Co-Trustees

Clearly, there are problems with both family trustees and professional trustees. One solution which we have used with success in our practice is co-trustees - both a professional and family member trustee working together. This can be the best of both worlds. Everyone can rest easily knowing that the basic trust functions will be carried out by the professional trustee. But the family member trustee will be on the scene to make sure that the trust is used to best serve the beneficiary.


 

So, You've Been Appointed Trustee, Now What?

You have been asked to serve as trustee on the trust of a family member. This is a great honor meaning that the family member trusts your judgment and is willing to put the welfare of the beneficiary or beneficiaries in your hands. However, it is also a great responsibility. You need to go into it with your eyes wide open.

  1. Fiduciary Responsibility. As a trustee, you stand in a “fiduciary” role with respect to the beneficiaries of the trust, both the current beneficiaries and any “remaindermen” named to receive trust assets upon the death of those entitled to income or principal                           now. As a fiduciary, you will be held to a very high standard, meaning that you must pay even more attention to the trust investments and disbursements than you would for your own accounts.
  2. May I read the trust? The trust document is your instruction manual. It tells you what you should do with the funds or other property you will be entrusted to manage. Make sure you read it and understand it. Ask the drafting attorney any questions you may have.
  3. The Trust’s Terms. Read the trust itself carefully, both now and when any questions arise. The trust is your road map and you must follow its directions, whether about when and how to distribute income and principal or what reports you need to make to beneficiaries. What are the grantor's goals? Unfortunately, most trusts say little or nothing about their purpose. They give  the trustee considerable discretion about how to spend trust funds with little or no guidance. Often the trusts say that the trustee may distribute principal for the benefit of the surviving spouse or children for their "health, education, maintenance and support." Is this a limitation, meaning you cannot pay for a yacht? Or is it a mandate that you pay to support the surviving spouse even if he could work and it means depleting the funds before they pass to the next generation? How are you to balance the needs of current and future beneficiaries? It is important that you ask the grantor while you can. It may even be useful if she can put her intentions in the form of a letter or memorandum addressed to you.
  4. Investment Standards.  Your investments must be prudent, meaning that you cannot place money in speculative or risky investments. In addition, your investments must take into account the interests of both current and future beneficiaries. For instance, you may have a current beneficiary who is entitled to income from the trust. He or she would be best off in most cases if you invested the trust funds to generate as much income as possible. However, this may be detrimental to the interest of later beneficiaries who would be happiest if you invested for growth. In addition to balancing the interests of the various beneficiaries, you must consider their future financial needs. Does a trust beneficiary anticipate buying a house or going to school? Will she be depending on the trust income for retirement in 15 years? All these questions need to be considered in determining an investment plan for the trust. Only then can you start considering the propriety of individual investments.
  5. Accounting. One of your jobs as trustee is to keep track of all income to, distributions from, and expenditures by the trust. Generally, you must give an account of this information to the beneficiaries on an annual basis, though you need to check the terms of the trust to be sure. In strict trust accounting, you must keep track of and report on principal and income separately.
  6. Taxes. Depending on whether the trust is revocable or irrevocable and whether it is considered a “grantor” trust for tax purposes, the trustee will have to file an annual tax return and may have to pay taxes. In many cases, the trust will act as a pass through with the income being taxed to the beneficiary. In any event, if you keep good records and turn this over to an accountant to prepare, this should not be a big problem.
  7. Delegation.  While you cannot delegate your responsibility as trustee, you can delegate all the functions described above. You can hire financial advisors to make investments, accountants to handle taxes and bookkeeping for the trust, and lawyers to advise you on questions of interpretation. With such professional assistance, the job of trustee need not be difficult. However, you still need to communicate with those you hire and make any discretionary decisions, such as when to make distributions of principal from the trust to one or more beneficiaries. 
  8. Distributions.  Where you have discretion on whether or not to make distributions to a beneficiary you need to evaluate his current needs, his future needs, his other sources of income, and your responsibilities to other beneficiaries before making a decision. And all these considerations must be made in light of the size of the trust. Often the most important role of a trustee is the ability to say “no” and set limits on the use of the trust assets. This can be difficult when the need for current assistance is readily apparent.
  9. Fees.  Will I be compensated? Often family members and friends serve as trustees without compensation. However, if the duties are especially demanding it is not inappropriate for them to be paid something. The question then is how much.                                      Professionals generally charge an annual fee 1 percent of assets in the trust or on an hourly basis or some combination. So, the annual fee for a trust holding $1 million would be $10,000. Often, they charge a higher percentage of smaller trusts and a lower percentage of larger trusts. If you are doing all the work for a trust including investments, distributions, and accounting, it would not be inappropriate to charge a similar fee. However, if you are paying others to perform these functions or are acting as co-trustee with a professional trustee, charging this much may be inappropriate. A typical fee in such a case is a quarter of what the professional trustee charges, or .25 percent (often referred to by financial professionals as 25 basis points). In any case, it is important for you to read what the trust says about trustee compensation and discuss the issue with the grantor.


If after asking these questions you feel comfortable serving as trustee, then accept the role. It is an honor to be asked and you will provide a great service to the grantor and beneficiaries. 


This can serve as only an introduction to your duties and responsibilities as trustee.
   



Beware of Non-Lawyers Offering Medicaid (MassHealth) Planning Advice or Aiding you in the Application Process

By Dale Tamburro • July 21, 2025
In recent years, a number of non-lawyers have started offering Medicaid (Longterm MassHealth in Massachusetts) planning services to seniors. While using one of these services may be cheaper than hiring a lawyer, the overall costs may be far greater. The person offering such services may not have any legal knowledge or training. Bad advice can lead seniors to purchase products or take actions that won't help them qualify for Medicaid and may actually make it more difficult. The consequences of taking bad advice can include the denial of benefits, a Medicaid penalty period, or tax liability. Additionally, our experience, having provided services in this area for over 30 years, has shown these non-lawyers have consistently failed: To diligently and comprehensively identify all the assets of an applicant before applying. Do not explain adequately, movement of the applicants’ funds over the five year lookback, which is necessary for the applicant to be accepted by Medicaid (MassHealth). Most do not offer planning advice. In contrast as an attorney, my priority will be to determine what money can be saved, used within the rules and how especially to handle real estate that the applicant has an ownership interest in. Such advice could preserve their home for their spouse and other beneficiaries and save the applicant or their family thousands of dollars, far exceeding the cost of such planning or services for the application that an attorney would charge. If they do provide advice, it could be bad advice, costing the applicant to lose an eligibility date or eligibility all together. A loss of even one month of eligibility could cost the applicant or their family as much as $20,000. As a result of problems that have arisen from non-lawyers offering Medicaid planning services, a few states (Florida, Ohio, New Jersey, and Tennessee) have issued regulations or guidelines providing that Medicaid planning by non-lawyers will be considered the unauthorized practice of law. For example, in Florida, a non-lawyer may not render legal advice regarding qualifying for Medicaid benefits, draft a personal service contract, or determine the need for or execute a trust.  Applying for MassHealth is a highly technical and complex process. It is especially difficult for long term care benefits like coverage for nursing homes. A lawyer knowledgeable about Medicaid law in the applicant’s state can help applicants navigate this process. An attorney may be able to help your family find significant financial savings or better care for you or your loved one. This may involve the use of trusts, transfers of assets, purchase of annuities or increased income and resource allowances for the healthy spouse. In Massachusetts particularly, the application process, although conceptually straightforward, is not. Too often a comprehensive application submitted still ends up on an appeal to the Board of Hearings, which is handled by attorneys for the Commonwealth.

How To Choose A Trustee

By Dale Tamburro • July 21, 2025
When I give Seminars on Trusts, they are long, detailed and I think very helpful to people who want to learn about Trusts. But I almost never cover enough information on your different choices for Trustees and the responsibilities of the Trustee. Like any estate documents they are only as good as the fiduciaries named in them. For a trust the fiduciary is called a Trustee. Trust Administration Basics A trust is established through the creation of a trust agreement. Within the trust agreement, the Donor or Grantor (creator) of the trust must appoint a Trustee. A Trustee can be any qualified adult, including a friend, family member, or professional (such as an attorney). The Donor can also appoint more than one Trustee, making them Co-Trustees or appoint an entity, such as a bank, to be the Trustee. The Trustee’s overall job is to guard the trust assets and oversee the administration of the trust. Administration the trust, however, involves numerous duties and responsibilities, including: The Donor or Grantor of the trust creates the trust terms, and those terms dictate how the trust should be administered. The Trustee needs to have a clear understanding of those terms and is legally required to follow them without deviation unless a term is illegal, impossible, or unconscionable. The Trustee is required to understand the trust purpose, as outlined in the trust agreement, and to make decisions with that in mind. A Trustee cannot allow his/her personal opinion to get in the way while administering a trust. One of the most important aspects of a Trustee’s job is protecting the trust assets. The Trustee is also responsible for investing the trust assets to help the principal grow. Unless the Donor specifically directs the Trustee to make riskier investments, all investments should be low risk and protecting the trust principal should take precedence over growing the trust assets. The Trustee has a duty to keep trust beneficiaries apprised of trust business and to communicate with beneficiaries as necessary. The terms of the trust agreement will dictate how the distribution of trust assets should be handled. The Trustee, however, is responsible for making sure those terms are followed and that the beneficiary receives the distribution according to the terms of the trust agreement. The trust agreement may give the Trustee the authority to make discretionary distributions. If a beneficiary needs funds prior to a scheduled distribution, for example, the Trustee may have the authority to grant that request. A Trustee should keep detailed records of all trust business, including distributions, payment of trust bills, and time spent administering the trust because those records may be needed to defend the trust, justify trust expenses, or even prevent the Trustee from being held personally liable for mistakes made during the administration of the trust. Because a trust is a separate legal entity it may be subject to taxation. Whether the trust must file a tax return and/or pay taxes will depend on the type of trust, the value of trust assets, and other variables; however, the Trustee of the trust is responsible for determining if any taxes are due and who or what should be paying them. If the trust has an EIN then the Trustee must also file the appropriate tax returns and pay or redirect any taxes due. The Trustee must provide an accounting annually to all qualified beneficiaries. Factors to Consider When You Choose Your Massachusetts Trustee A Trustee is in a fiduciary position, meaning that the utmost care must be taken to protect the trust assets and that all decisions must be made with the best interests of the beneficiaries in mind. A Trustee is also required to juggle a considerable number of duties and responsibilities while administering the trust. All of this should be taken into consideration when appointing a Trustee to limit the likelihood of costly mistakes being made by the Trustee. Before appointing a friend or family member based solely on your relationship with that person, consider whether that person has the following essential characteristics: The Trustee you appoint will be responsible for managing and investing the trust assets. Ideally, your Trustee should have a background or education in finance. By the same token your Trustee must understand the trust terms and the state and federal laws that are applicable to the administration of the trust. That makes someone with a legal background an ideal candidate for the position. Your decision should not be based entirely on the fact that you trust someone; however, being trustworthy is certainly a necessary characteristic for a Trustee given that the Trustee will control the money and assets you use to fund the trust. The Trustee is also responsible for distributing those assets to beneficiaries and paying trust bills, including his/her own fee for acting as the Trustee. Your Trustee may not agree with the terms of the trust agreement, but that cannot interfere with his/her job as Trustee. A Trustee is legally required to administer the trust and make discretionary decisions with the stated trust purpose in mind and by using the trust terms created by the Donor without regard to the Trustee’s personal opinion. Consider whether your prospective Trustee will likely create a conflict. If he/she is a member of the family, for instance, will appointing that person as your Trustee create a conflict within the family? Are other family members beneficiaries of the trust, putting the Trustee in a potentially awkward position? What about business dealings that could create a conflict for the Trustee? Whenever possible, avoid appointing a Trustee who will likely create a conflict. People frequently make the mistake of assuming that someone is willing to serve as the Trustee of the trust they create. With that in mind, be sure to discuss the position with a prospective Trustee before appointing him/her to the position. Along with making sure that a prospective Trustee is willing to serve, take into consideration whether the person will realistically be available to fulfill the duties and responsibilities involved in administering the trust. Consider where the person lives or is likely to live in the future as well as his/her existing family obligations. Finally, consider the person’s age and health when deciding if they would make an ideal candidate for Trustee . There are many considerations to think about if you have co-trustees. Often co-trustees are a family member/friend and a professional like an attorney or accountant. There are many good reasons to use a professional trustee with or without a co-trustee. These considerations are different for everyone and should be discussed at the time of creating the trust.