Trusts are a commonly used tool for individuals and families to preserve wealth for younger generations, protecting inheritances from both internal and external threats, or providing management of complex family assets for the benefit of family members and others. Stated simply, a trust is a legal arrangement between three parties – a settlor who creates the trust; a trustee who manages the trust; and a beneficiary (or beneficiaries) who benefits from the trust. The agreement will have its own set of instructions for the trustee that direct the trustee how to manage the property and when to give property - or the income derived from it – to the beneficiary. The trust must also have a termination date – a future time when the property of the trust is distributed to the surviving beneficiaries. Until then, which can be one hundred years or more, the property is held under the control of the trustee who manages it according to the original settlor’s wishes.
Trusts have also been described as pre-arranged marriages between beneficiaries and a trustee and like any marriage, works best when there is good communication between the parties. A trustee owes a unilateral duty of loyalty to the beneficiaries he or she is responsible for. With such an important and generational role, I am amazed at how little thought goes into choosing a trustee. I would like to suggest that there are four qualities to look for in a trustee that will help make the trustee – beneficiary relationship one that works well for all parties. These qualities apply to both individuals selected for this role such as family members, as well as to professional trustees such as my employer, Argent Trust, or any other financial institution that offers trust services.
When most people think of the characteristics of a professional trustee, they often focus on the trustee’s competency. However, aside from these minimum required qualifications – such as asset management expertise, administrative accuracy, and knowledge of fiduciary law – most of the conflicts that occur between trustees and trust beneficiaries are due to a breakdown in the character qualities of communication, collaboration, and connection. The graphic below illustrates the importance of both the competency and character attributes of a trustee.
Competency
I think of competency as minimum job requirements. Any professional trustee who is authorized to act as trustee by the appropriate regulatory authority should be able to demonstrate core competency in asset management – that is the prudent investment and management of the assets placed in the trustee’s care; administrative capacity, which has to do with accurate record keeping, following processes and procedures, and reporting to trust beneficiaries; and knowledge of trust law, which governs the actions of trustees and establishes standards of professional conduct and responsibility. Conflicts between beneficiaries and trustees are often due to a failure or “breach” in one of these competency areas on the part of the trustee. However, close examination of the court transcripts where these conflicts occasionally get argued, reveal that problems in the trustee-beneficiary relationship began long before the breach occurred.
Character Qualities: Communication, Collaboration, and Connection
Communication:
Like with any relationship, good communication is key to making the trustee-beneficiary relationship a positive experience for everyone. Frankly, without clear, frequent, and open communication, the trustee-beneficiary relationship is doomed. At best, there will be tension between the parties and unmet expectations. At worst, the conflicts that will inevitably result, may lead to costly litigation, fractured relationships, and loss of trust assets. Communication should go beyond simply providing an annual statement or reviewing the investment performance of trust assets. Important as this is, this level of communicating belongs more under competency standards than character qualities. Communication that improves the quality of the relationship means that a trustee spends time with the beneficiaries in order to truly understand their personal and financial circumstances so that the trustee can make decisions that are in the best interests of the beneficiary. Many trusts instruct trustees to exercise discretion when it comes to doling out trust funds for beneficiaries, and to base their discretion on broad standards such as “support, maintenance, education, or health.” Frankly if the trustee is only available at the end of an 800# or is a long-distance trustee with no personal knowledge of the beneficiary’s individual needs, the level of communication will be insufficient to exercise the discretion required, or to even know how to apply a support standard.
Collaboration:
Collaboration means that the trustee and beneficiaries agree to work together, with one another, as well
as with others whose talents or history with the beneficiary family can help to accomplish the financial and aspirational goals that a trust has for its beneficiaries. For example, trustees may need to work with other professionals – investment advisors, property managers, legal and tax advisors, mineral managers, etc. - in order to effectively serve the beneficiaries and best manage the trust property. Likewise, collaboration with beneficiaries by including them in the decision process and communicating the value of their input, will only improve the quality of the relationship even though the final decision rests with the trustee. The more collaborative the relationship between a trustee and a beneficiary can be, the less likely will conflicts erupt, and when they do, a collaborative approach to resolving the conflict can be achieved.
Connection
Connection seems to be especially challenging for those of us who are professional trustees. We often hide our empathy with beneficiaries behind the more technical aspects of our job and thereby fail to connect to beneficiaries at a human level. On the one hand trustees must not allow emotions to interfere with their objective discretion and should not be influenced by the manipulative behavior that some beneficiaries have mastered. On the other hand, trustees are frequently put in the position of mentor or surrogate, a role that is poorly performed when we fail to connect with beneficiaries. Helping a young beneficiary evaluate a business opportunity or buy their first home means walking alongside them in the process. When they think it’s a good idea to buy a $50,000 sports car when they are 18, a compassionate trustee can guide them into better decision making as opposed to simply denying the request. This kind of connection is difficult to achieve if the trustee you have chosen is across the country or detached from the beneficiary. Even when the trustee is an institution, there is always a person representing that institution whose job it is to understand the needs of trust beneficiaries and to carry out the intentions of the trust’s creator consistent with the worded agreement. Within Argent, my own discretion is subject to a checks and balances team that brings collective wisdom and objectivity to every situation where discretion is necessary.
Argent Trust has applied this approach of Competency and Character to trust management for over thirty years. Our culture of placing the client at the center of everything we do is more than a catch phrase or marketing tagline. It is part of our guiding principle of humble confidence, demonstrated by our CEO and embraced by our 300 plus employees. Our southern roots are embedded with the values our clients ask us to help perpetuate when we are called upon to manage their legacies. Our size and sustainability mean we will still be stewarding your wealth the right way decades from now. When planning your legacy, think carefully about who you will entrust to carry it out.
David Russell is a Wealth Advisor, Vice President and Trust Officer with Argent Trust in Ridgeland, Mississippi. Argent is responsible for over $30 billion of client assets with 31 offices throughout the South. For more information, visit argenttrust.com.
