The job of the trustee is to ensure that the benefactor’s wishes are carried out. It is not to acquiesce to beneficiaries who do not like the terms of the trust.
Yes and no, respectively. If a benefactor’s wishes are reasonable and in the best interests of the beneficiaries, the trustee should be able to execute them responsibly. However, some situations make it impossible for a trustee to carry out the terms of poorly conceived trusts. For example, the Barnes Foundation ran out of the money necessary to fulfill the stated intention of the benefactor, who wanted his art collection preserved forever, because he didn’t allow his trustees to make changes in regard to how the art was displayed.

"Given the wealth of information on the Internet, I often wonder if most of what my industry promulgates isn’t just hype."

The Barnes house outside Philadelphia is chock full of Expressionist paintings. Barnes did not provide for the possibility that insurance, security, display and maintenance costs would suck up the relatively small amount of liquid funds he left. Because the benefactor’s wishes were poorly structured, the trustees have had to struggle, and the public is unable to properly enjoy the priceless art. In this case, the benefactor’s wishes were counterproductive to his long-term goals for the artwork.

Trustees have to look at the true intent of the benefactor, and not
necessarily hew word-for-word to the specific language that was used at the time. If Barnes had had good advice and the foresight to give his trustees the ability to carry out his intent that the collection be handled in such a way that the greatest number of people could benefit from it, everyone’s interests would have been better served.

The Barnes trustees had to spend millions of dollars in legal fees to ask for help from the courts, which are empowered by law to help trustees when there is a conflict between a benefactor’s intent and the original language in the document.

The terms of most trusts can be eliminated or changed if the beneficiaries are willing to pursue the matter in court.
True, though powerful vested interests often try to keep this fact from the public’s consciousness. Some self-serving professional trustees make it difficult for beneficiaries to change the terms of a trust. Going to court is the last resort. There are many interim and highly effective steps beneficiaries can take to regain control over the management of the assets in their trusts.

Second- and third-generation trusts are nearly impossible to change because the sheer number of beneficiaries involved frustrates their ability to form a consensus.
This is generally true. It can be a kind of Malthusian nightmare to get several generations of loosely related people together on the same page. It’s hard enough for two people who are married to agree on financial issues! It makes sense that siblings and cousins will have a hard time coming to an agreement on how to deal with nonproductive trustees.

Making changes is always possible, once the politics of a trust situation are well understood. Members of the second or third generations have rights, powers and leverage, even when the trust document doesn’t explicitly enumerate them.

Extended families don’t have to agree on the specific goals of their respective trust accounts, but they do have to agree on the need to assert their family’s right to be heard. Some trustees will exploit divisions between family members to stall changes. Maintaining the status quo is a common goal of trustees who feel entitled to their fees.

Any trust can be split, and this is a common solution to the problem of how to address the different goals of different generations or branches of a family. It’s not something trustees want to do, as it is more work; but at the end of the day, the beneficiaries should get what they want, as long as it is reasonable.

Law and accounting firms make good alternatives to banks for administering trusts.
Not so. While individual lawyers or accountants may be perfectly appropriate choices to act as individual trustees, using any kind of professional service firm as a trustee is a mistake. When a professional firm acts as a trustee, eventually the family is forced to deal with an institutional mindset that has, as its primary goal, the aim of perpetuating itself. One of the most honest attorneys I know shared with me this quote from one of his law professors: "Estate planning is the proper marshalling of assets in order to generate fees." When a firm is chosen without specific limitations on the terms of service, and when the right to remove it with or without cause is not present, a benefactor is setting the stage for future conflict.

One member of the firm may have or have had a special relationship with the benefactor. If no family member has proven experience in handling money on behalf of others, many grantors naturally seek the counsel of trusted professionals. As a result, people who are nominally responsible for hundreds of millions of dollars of old family money sit on their butts in skyscrapers. For them, it’s a better deal than selling insurance, because they collect substantial fees every year for doing very little.

These senior partners pass this lucrative business along to their younger associates when they retire, thereby enhancing the sales value of their professional partnership interests. When a law or accounting firm—or anyone, for that matter—has the right to name the successor trustee, without input from the family, it’s bad news for the beneficiaries.

If potential trustees have the same skill sets and access to the same financial information, they can be expected to provide similar levels of service.
False. It’s impossible to know if someone is going to be a good trustee unless he or she has a proven record of providing personal service. This doesn’t mean you shouldn’t consider someone because he lacks prior experience. Many people who have no technical expertise make great trustees, while others who have a high degree of technical skill in investing, law or accounting end up being terrible fiduciaries because of their narrow scope. Trustees have to have the beneficiaries’ best interests at heart and be willing to ask for help.

If the trustee generates regular reports, there is no need for—and the trustee would likely resent—further communication from the beneficiary.
Any trustee who resents communication is a bad trustee. Acting as a trustee is akin to being a member of the family, but without the emotional entanglements. Trustees who are unable to put themselves in the shoes of the beneficiary are the ones who generate reams of paper reports that mean nothing to the recipient. Personal contact is essential in order for the trustee to make good decisions, which, after all, have life-changing effects on the heirs.

Attempts to break a trust will result in bad publicity for the family.
Bad can be good! Publicity, or the implied threat of it, is one of the most effective tools a family has in dealing with unresponsive or poorly performing trustees. The last thing a trustee wants is for beneficiaries to bring complaints into public view. A trustee’s reputation is its most valuable asset. Any threat to its image, either perceived or actual, will elicit a strong response. It is a calculated risk, but moving incrementally toward exposing abuses is a sure-fire way to get the ball rolling. If you as a beneficiary decide to step up to that plate, you have got to be willing to play hardball.

When either a benefactor or a beneficiary demands a change in the terms of the trust, the trustee should be required to respond within a set amount of time.
Good trustees respond in a timely manner. Problems in this area usually indicate that deeper issues need to be addressed.

There are no statutory requirements that detail timetables for trust services. Due to the complicated nature of many trust assets—securities, real estate, closely held businesses—a set timetable is often not possible. Making changes in the terms of a trust or in its investment orientation requires due diligence, and that takes time.

There ought to be—and can be—firm commitments on the part of trustees to provide beneficiaries with frequent and detailed status reports.

Trust accounting is basically the same as all other types of accounting.
Not so. Principal, also known as the corpus, body or original amount, is deposited to an account. Any increase in value of the trust due to appreciation is also usually considered as part of the principal. Interest, dividends, rent and royalties are considered income, and these "cash in" items are accounted for separately in trust accounting. It is common to see one beneficiary receiving the income while someone else gets the principal. These different classes of beneficiaries usually get their money at different times. Principal and income must be tracked separately.

Beneficiaries need a Bill of Rights.
Clearly, given actual and potential abuses in the field, trustees need to commit to a minimum standard of responsiveness they will bring to the table. In my book, Managing Family Wealth, Taking Control of Inherited Wealth, I lay out what the beneficiary ought to expect and what financial advisors can do to see that their clients receive their just desserts.

Eventually, market forces will create this kind of Bill of Rights as the use of trusts for intergenerational wealth planning, asset protection and professional management is exploding. Regulators don’t have the time, resources, ingenuity or agility to legislate a Beneficiary Bill of Rights. It is up to business people with high ethical standards to establish their own level of professional responsiveness.

Trustees also need a Bill of Rights.
No, trustees do not need a Bill of Rights. On the contrary, they need a code of conduct. But more legislation is not the solution.

Banks are doing a much better job today than they were five or 10 years ago. With the consolidation of banks and the depersonalization of bank services, institutions have lost tremendous amounts of trust assets to upstarts in the industry.

Traditionally, trust officers have cared about their clients, but providing high-quality service does not add much to a bank’s bottom line. The 1980s and 1990s saw an explosion of investment services offered by banks. Trust administration took a back seat to the more profitable areas of brokerage, investment advice and insurance. At the same time, employees who had talent in the investment area left trust departments in order to create their own firms.

Individual trustees, such as lawyers and accountants, are not regulated. This is where a legislative Bill of Rights on behalf of beneficiaries might be appropriate. Trustees should not be allowed to enrich their firms by guaranteeing themselves perpetual employment as paid fiduciaries. Beneficiaries should not be beholden to trustees; they should not have to come begging for distributions hat in hand. I have seen trustees, especially half- or stepsiblings, abuse their authority and deny well-documented, justifiable financial requests.

One common complaint against trustees is that they reduce their jobs to the criteria of just not being sued. Trustees who adhere to this way of thinking do as little as possible, taking the safest route and sticking to the status quo. Today, nontraditional investment vehicles are compelling alternatives to blue chip stocks and bonds. Areas such as estates, non-U.S. currencies, direct private investments and hedge funds are an
integral part of large foundations’ investment programs. Individual benefactors and their descendents will soon expect their trustees to have a plan to incorporate some of these alternative venues. It might eventually be necessary to prod trustees, through a national Beneficiaries Bill of Rights, to ask for outside help in areas in which they have no expertise.

Touchy issues, such as religion, politics and sex, should be considered in selecting a trustee.
If being of any particular religion, party, or preference ensures high ethical standards and an ability to empathize with the beneficiary, I am all for it! But in my experience, race, gender, religion and politics have no direct correlation with a potential trustee’s ethical character.

Values change. Since perpetual trusts are now available in places such as Alaska and Delaware, the best protection for a benefactor is to build flexibility into the trust document by allowing beneficiaries to have the right to remove the trustees in cases where they no longer fit the bill.

Children need no more than a basic knowledge of money management. Advisers and trustees can provide them with whatever information they require.
Since financial management is not rocket science, most beneficiaries, be they children or adults, ought to be able to grasp the few, relatively simple concepts necessary to successfully manage their accounts. There is a huge industry built on the premise that outside trustees or managers are necessary to properly manage trust money. Given the wealth of information on the Internet, I often wonder if most of what my industry promulgates isn’t just hype.

Trust beneficiaries want and deserve simple, understandable communications. They should be able to get this kind of knowledge without taking a college course in finance. Common sense and a healthy sense of skepticism should provide enough guidance for both benefactors and beneficiaries.