The Trustee Primer

Patricia Angus is the CEO, Angus Advisory Group LLC & Managing Director of the Global Family Enterprise Program and Faculty Director of Enterprising Families Executive Education at Columbia Business School. A recognized thought leader in multi-generational family governance and wealth, she has advised families with businesses, trusts, and charitable foundations for more than 25 years. She currently divides her time among teaching, consulting, and writing.  Her publications include The Trustee Primer and The Beneficiary Primer, along with dozens of articles on family enterprise, wealth, philanthropy, and the social contract.

Kirby Rosplock

Welcome to the Tamarind Learning podcast. I am Dr. Kirby Rosplock, your host, and today we are talking with Patricia Angus about the Trustee Primer. This is an excellent resource, I can tell you, because I've loved mine dearly. Patricia is a recovering practicing attorney, so she had a long career as a trust and estates attorney and working throughout the wealth advisory space. She is today continuing to do a lot of consulting and advisory to affluent families, beneficiaries, wealth advisors, trustees. And she's also an adjunct professor at Columbia University. University, and she holds many other hats as well. She's the Managing Director of the Global Family enterprise program. And she's also the Faculty Director of the Enterprising Family Executive Education program. Lots titles. Patricia, we are so happy to have you here today. We're so excited to talk to you about the trustee primer. This is just one of my favorite resources. I'm going to show it again because it's so great. But maybe you can tell me and the audience, everyone listening in today, why did you write this book? What was the motivation? Who do you feel like is most likely to read it besides me?

Patricia Angus

Well, I'm glad that someone is reading it. So thank you, Kirby. I'm glad to see that. I love that you also You put Post-it notes in your books just like I do. That's my way of guiding myself back through it. Why did I write it? There's plenty of other things that I'm doing in my life, right? So many years ago, more than a decade ago, I saw something on the horizon that I started calling the perfect storm. And what was I seeing? I had been a trust of state's lawyer. I'd been working in wealth advisory work, and I was working with family offices and families. And what I saw was that the number of trusts set up in the US and around the world was going up exponentially. The complexity of assets in the trusts was going up dramatically. This wasn't just bank accounts anymore. It was hedge funds. It was illiquid assets. It was venture capital. It was family businesses, artwork going into trusts. And I also saw in the institutional side, a reduction of an emphasis on trust business as being something separate from in the investment business. So there's this convergence and everything swirling around.

Patricia Angus

I also saw that there were beneficiaries who were going to be new to trusts in families that had never had them before. In addition, there was an increasing trend towards naming individual trustees. Families wanted to keep control over their assets. They wanted to have somebody they trusted or in their family office or their lawyer, their advisor, their accountant, their aunt, their uncle be the trustee. So you had a heck of a lot of new trustees who didn't know what to do about and they had a much more complexity than before. So I wrote it basically for these individual trustees or trustees who are working with family offices, supported by a family office, to help them get up to speed fast. Because the day you become a trustee, the day your liability begins, the day your responsibility begins. And I can't tell you how often I would speak to people three years in, and they hadn't even read the trust agreement yet. So I wanted them to say, get your trust agreement, know what the responsibilities are, and have a framework look around what you're doing. It's intangible. Trusts are intangible, and I wanted to make it a bit more manageable for new trustees.

Kirby Rosplock

Well, especially if you're not cut from the trust and estate planning cloth, or maybe you're not reading legal documents on a regular basis. I mean, being put into that role can probably be just as overwhelming as being born into or becoming a beneficiary and not really necessarily knowing your relationship. Maybe you can Can you just jump in and hit some key highlights that you pick up in the primer that help our listeners just think about, okay, this is really interesting. This applies to me.

Patricia Angus

You've just already planted the seed for one of the big highlights. Even if you are a trust and estate lawyer, even if you spent all your time in law school reading every document known to humankind, and you may even have an LLM in tax, which is the masters for those nerds who want to go beyond law school to learn even more about it. Trusts have such a heavy emotional component to them. It's not the stuff you learn in law school, just to put it out there. And not every lawyer, not every trust lawyer understands how to work with beneficiaries. So one of the highlights in the book is how to think about the relationship aspect of it, how to think about who am I as a trustee? What am I good at? Who is this beneficiary whose life I am here to support? I I'm not here just to write a check, and I'm not here just to be the gatekeeper from some funds that were set up generations ago. What is the relationship I'm setting up with this person so I can mentor them, I can support them, and I can enhance their life experience?

Patricia Angus

That's a highlight, and I asked some questions of the trustees for themselves and also in connection with the beneficiary in it. That's number one. Another highlight is the big picture, okay? You can get lost in a trust document. What do you really need know about being a trustee? There are three fundamental roles. One is administration. There are plenty of people who become trustees who don't have very organized files. Let's just be honest. But you got to change all the title, and you have to keep track of it, and you have to create accountings, and you have to make sure that you can be accountable for what you've done. Thinking about administration, if you're responsible for that. Thinking about investments. Thanks to what's called the prudent investor rule, You don't have to pick every stock. You don't have to figure out what the best investment is in the world. But you have to oversee the whole portfolio. You have to monitor whoever you've hired from the outside. And then you have to make sure you've done that in a professional way without violating any of the duties of care and loyalty and all of that. And then the third is distribution.

Patricia Angus

So if you are a traditional trustee who still has all three roles, and granted, there are probably many people who are listening to this podcast or watching this podcast who may have a trust that has divided the roles, but you can't get rid of the roles. Whether you have one trustee or three trustees or whatever, there's a role of distribution, and distribution is quite complicated, whether it's making an annual payment of income or deciding every now and then to distribute out.

Kirby Rosplock

Well, I'm so thankful that you just gave us the cliff notes of already a cliff noted awesome summary, because I think that's really going to key us in as listeners and when we your book. Obviously, I've read it a million times, but I love that you boil it down and make it super succinct. And I just want to also emphasize that you actually share about the role of the trustee in a way that maybe not all trustees think about. I mean, I appreciate that you put a huge emphasis about that human component, about actually connecting. I mean, how many trustees have I experienced personally in my life where I don't even know the face of the corporate trustee, right? Or I don't even know. There's so many examples. So I really like that you humanize the role of the trustee and you make an emphasis about the relationship because I can't stress that enough. I think that's so much of the success of a beneficiary is really in the hands of the trustee, how active, how much they know their beneficiary, how involved they are with the oversight of the trust. So I'm glad that you created this resource because it reiterates so many important fundamental things that just don't get talked about, to be honest, in our space.

Patricia Angus

So thank you.

Kirby Rosplock

To this point about the trustee, though, let's talk a little bit about some of the challenges. Because I think there's some real critical challenges that trustees face, and maybe we aren't always so open and honest about how challenging this role can really be. Can you give us your insights on the challenges?

Patricia Angus

Yeah. You know, Kirby, it's hard to say no when somebody asks you to be a trustee. It is something that feels like such an honor. I mean, if you asked me to be trustee of your children, I would think really seriously about that because you are entrusting their welfare in somebody, whether we were sisters or your lawyer or whatever. So thinking long and hard about that role that you're going to take on, I think, is one of the greatest challenges, is really to think about, can you live this role in in a way that you are looking out for the best interest of another person at all times? It's almost beyond being a parent. So that's one thing is, is this a role you want to take on? Secondly, one of the challenges that I see is if a trust gives the trustee discretion over distributions, and this is a trend that has been going on when I talked about the perfect storm. Part of the perfect storm is that trust 25, 30 years ago, when I was writing them and when we were all writing them, It would very often say one-third goes out at 25, one-half goes at 30, and everything goes at 35.

Patricia Angus

And it was pretty easy. The trustee would coast along to 25, and then they'd write a distribution check, and then 30, they'd write a distribution check. Today, very often, trusts will say, distributions can be made to the beneficiary in the trustee's sole discretion, or can be made for health, education, maintenance and support, or for education, whatever. If you're a trustee and you have any discretion, you need to figure out pretty early on what process you're going to follow to figure out how to exercise your discretion over it. And I think some of the factors that go in, and I'm not going to tell everybody how they have to do it because it's part art, part science. What's the size of the trust? What's the magnitude of the distribution versus the size? How is the trust currently invested and how will this distribution impact it? What's the beneficiary's current situation? Okay, if they're 15 years old and they're asking you for a million dollars out of their five million dollar trust, that seems pretty high for a 15 year old. What are they going to use it for? Now, I know there's a lot of really high tech young people these days, and maybe they're going to create a new business and be the next Amazon.

Patricia Angus

It might be a good distribution, but do they have the qualifications for it? Is this really somebody who's going to go to the next level with it? So having some sense of what the purpose of the distribution is, is really important. Will it help that beneficiary, or will they make the beneficiary become more dependent on the trust for the rest of their lives? And that's where trusts are fabulous. They create asset protection for people. There's tax benefits to it. There's a way to keep professional advisors in your life. I mean, how wonderful to have somebody help you invest, or if you're a co-trustee with them and to learn from them at their side. But One of the worst things you could do is get distributions from a trust before you're ready for it. And I have seen too many of those examples. So as a trustee, really, before you make that first distribution, figure out what are some of the criteria for a good distribution. And it's not just your win. I had a call recently where one of the questions was, can't the trustee do whatever they please? And that is just not true.

Patricia Angus

There are centuries worth of laws that will guide what a trustee can do. Even in the most broadly written discretionary trust, there are still some limitations as to what the rules are. So as a trustee, you really have to think long and hard about that one as well.

Kirby Rosplock

Yeah. Well, I'm glad you bring the cautionary tales. And I'm sure if we wanted to geek out with case law and trust law, we could share more about the war stories. I mean, there's a lot in the papers and public record about trustees being sued and for all different credible reasons. And so, I mean, it is really the bar is pretty high. And I'm really thankful that you emphasize the liability aspects that when you assume this fiduciary duty, you're taking on. And it's just really important that you understand so that you can adequately prepare the beneficiary for that expectation as well. I mean, it's your job, too, to help them understand what the relationship really is, because not every beneficiary is going to know just because they become a beneficiary.

Patricia Angus

No, and I think often, beneficiaries feel as though the trustee is making mercurial decisions that are really just the trustee's win. But in fact, no trustee should ever just make a decision without thinking about what's the framework, what's the purpose of the trust, will this benefit the beneficiary? And honestly, all of those sad stories of litigation. Done well, there should never be a reason to have to go to litigation when it comes to a trust. If a trustee genuinely spends the time to figure out what their role is, what the purpose is, and how to do it, and develops a relationship with a beneficiary that's more akin to a partnership than a subservient role, then I think you have a great chance of having a one wonderful time together.

Kirby Rosplock

Yeah. And I mean, just to close, I think the last question just on the front of selecting a trustee or how do you choose a trustee? Because I also don't want to leave this podcast the impression that if you're not a technician, if you're not a trust and estate adviser or professional, that, oh, I shouldn't step up to the role of trustee. I think there's a lot of really excellent trustees out there that might come from different backgrounds. And so what are What are some of the criteria that you think are critical or even the process in selecting a trustee?

Patricia Angus

I think you use the right word process. Very often people... Look, when I was a trust and estate lawyer, people were scared to come to our office because they're talking about their own mortality. They have to sign documents with words that they haven't seen since they took Latin, and most of them didn't take Latin, so they've never seen them before. It's a scary moment in your life to have to sign away things in a trust. So choosing a trustee seems easy. I'll choose my brother. I'll choose my aunt. I'll choose you. Okay, I'll choose my wife. I'll choose my husband. Slow down the process, okay? Slow down and say, what's the purpose of the trust? What are some of the characteristics of a trustee that I'm looking for? If the trustee has to do everything, administer, invest, and distribute, do they have the capacity to do that? Do they have the skillset? You might need co-trusties. You might have somebody who is so emotionally intelligent that they will be able to figure out whether a distribution is good for your beneficiary or not in a nanosecond. And you team them up with somebody who's going to know, okay, what's the best new investment that's going to work for long term growth or short term income.

Patricia Angus

And maybe one of them has a great back office to do the administration. You might need those two co-trusties. So don't tie yourself into starting with a person before making a So it's not about personality. Don't bring in somebody without having thought, do these qualifications exist in this person? And is it the right role for them in this environment? So it may be that they're too close to the beneficiary. They just might be emotionally too close. And that's okay. They might be excellent investors. Either you just have them on the investment side, but you don't have them on the distribution side. They may be wonderfully intuitive, but really don't understand investment world. They may be fabulous on a distribution committee, but maybe not necessarily being in charge of investing. So thinking about the characteristics and the role before the person, as opposed to, oh, my God, I have to sign this document. And what's your middle name? You're calling up somebody as you're in the lawyer's office. That's not a good way to do it. And finding somebody who wants to rise this occasion, it is such an honor to be asked to be a trustee.

Patricia Angus

I think it's having somebody who wants to do I think that's so important, too.

Kirby Rosplock

But I love that you talk about process over just picking a name or a person and really thinking about the context. I think that those are brilliant insights also about the environment that you're asking them to step up in. And just their existing, if they have a pre-existing relationship with the beneficiary, what does that look like? And would that serve or maybe be a disservice if they now step into the fiduciary hat? So for any new trustees in the universe or any old trustees, again, I highly encourage Patricia Angus's book, The Trustee Primary. You can tell by my bent pages and my earmarked pages that I've used it and I approve it and I love it. And I think it's very, very valuable. So I am very thankful to have you here today, Patricia. You are a luminary. Thank you for sharing your wisdom on the Terminal Learning podcast, and we hope to have you back soon again. So with that, we will make a wrap.

Patricia Angus

Thanks so much, Kervi.