Written on July 28, 2015 – 8:00 am | by Corina Weigl
This is my last blog in my series “Trustee and Beneficiary – An Arranged Marriage”. In my first blog of this series, I made the point that relying upon the concept of an arranged marriage when establishing the trustee-beneficiary relationship ought to be reconsidered. Rather, it’s time those who espouse the use of trusts and those who embrace their benefits as a mode of property ownership, consider facilitating a more open and engaged relationship between trustees and beneficiaries. In my last blog, I focused on the role of the trustee and how s/he can facilitate a more dynamic relationship with the beneficiaries to whom they are accountable. In this blog, I focus on the role of the beneficiary.
I suspect the suggestion that a beneficiary has a role to play in this relationship will seem odd to some readers. If it does, I would ask you to consider whether any relationship has a chance of success where one member is a passive bystander, as opposed to an active participant. Like a marriage, to have a chance of success, the trustee-beneficiary relationship requires active and engaged participation from both parties.
So what should a beneficiary do in order to be an active and engaged participant, thereby facilitating an excellent trustee-beneficiary marriage. The following are some suggested actions for a beneficiary to adopt upon learning they are a beneficiary.
- Read the trust document; read it again and again.
- Engage a professional advisor to assist you in understanding the trust document. In my view, this is an area where it is critical to engage an advisor that is well-versed in trust law. Besides the technical expertise, ideally this advisor will have excellent inter-personal skills, as well as an ability to facilitate co-operation among the parties; after all, they share a common interest – the success of the trust. Ideally s/he is not the “litigate first and ask questions later” type.
- If the creator of the trust is alive, ask him/her to explain the rationale and purpose of the trust; otherwise consult with a professional advisor for such an explanation. In addition, ask the professional advisor to explain all aspects of the trustee’s powers and duties, particularly those that have a discretionary aspect to them, and the implications of the trustee not fulfilling his/her duties. Take steps to understand how the trustee is compensated.
- Ask the professional advisor to explain your rights and your responsibilities, together with the potential implications of exercising those rights. Yes, as a beneficiary you can sue but what will that entail and what potential recovery can you ultimately expect to receive. This is particularly important if you are just one of a group of beneficiaries and the other beneficiaries do not share your concerns.
- If the trust is invested in portfolio assets, you should develop an understanding of the trustee’s obligation to invest as a prudent investor. This will require a baseline understanding of “modern portfolio theory” and how investment managers develop an investment plan and then fulfill that plan through asset allocations and rebalancing of allocations. If the trust is invested in a real estate, understand the nature of the portfolio – residential (single family or multi-unit), commercial, or industrial – and what it means to own, operate and manage the particular type of real estate portfolio that the trust owns from both a current cash-flow perspective, as well as the ongoing capital expenses needed to maintain the portfolio, both short and long-term. If the trust is invested in an operating business, whether directly or indirectly through another company, understand the nature of the business and what that may mean to the form, timing and quantum of distributions.
- Insist that any trustee-beneficiary meetings occur at a time when you will be engaged in the meeting. Review the agenda for the meeting in advance and ensure it addresses the topics you wish to be addressed. If there are topics you want addressed, ask that they be added to the agenda. Be engaged in the meeting, after all, the trustee is managing the trust property for your benefit.
- If you don’t understand any aspect of the information that is conveyed to you about the trust property or the trustees’ accounts, consider whether you need to educate yourself. While you could engage professional assistance to assess and advise you on the information, in the long run it will be more effective if you gain a general knowledge of the trust property (see 5 above) and trustee accounts.
- Consider whether you need any further education to ensure you are financially literate.
Ultimately, the means of ensuring a beneficiary successfully benefits from the trustee-beneficiary relationship is by ensuring the beneficiary understands that they have to participate in this relationship. Participation will require some time and effort on the part of the beneficiary. Hopefully, the above list will act as a tool to assist in the process.
 The comments made in this blog are based upon the article written by James Hughes called The Trustee as Mentor. I encourage readers to consider Mr. Hughes thoughtful comments whenever they are considering establishing a trust, taking on the role of trustee or being advised they are a beneficiary of a trust.