Trustee Audit – Kemp C. Stickney & Co

Why should every prudent Fiduciary submit to an annual Trustee Audit?

The simple answer to this question is that no one serving as a fiduciary wants to be found in breach of their fiduciary duty. Fiduciaries will inevitably be held to the highest standard of care. As one recent example fiduciaries who had oversight over a 401 K plan for employees were found to have breached their duty because of excessive fees on the investment choices in the plan in combination with poor performance. Careful and regular review is a best practice given the increasingly harsh financial penalties that have been imposed on fiduciaries recently.

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We think undertaking an annual “Trustee Audit” is a straightforward way to remind fiduciaries of all of their roles and responsibilities. In many instances fiduciaries serve in multiple capacities or roles. This annual review will help to remind you what your responsibilities are and think through potential or real conflicts you might have. This simple audit is also an excellent way for a fiduciary to demonstrate their due diligence, pointing to the fact that annually, they have reviewed each of their responsibilities and understand them. Memorializing important decisions is another good practice that is often overlooked by individuals who serve as fiduciaries. We recommend that they take a more formal approach to their role. Corporate Trustees are required to do periodic reviews which are normally documented and we think individual trustees should adopt the same practice otherwise they may risk missing an important fiduciary issue after it is too late to fix it.

In today’s litigious environment all fiduciaries (trustees & co-trustees, executors, direction advisors, trust protectors, etc.) need to be more diligent than ever. For example, many fiduciaries don’t realize that they may be held in breach for actions taken or not taken by a co-trustee or agents that they have hired or delegated some task to. This oversight responsibility and potentially significant liability to a fiduciary for some task that they have delegated often catches someone in a fiduciary role by surprise. Lastly, many of the duties that a fiduciary typically has are often done infrequently and may not be familiar or well understood. It is important that every fiduciary take the time to understand the pros and cons of a significant decision as well as all of their responsibilities thoroughly before making an important decision.

As a starting point for a Trustee Audit we think every person serving as a Fiduciary should ask themselves the following 10 questions annually?

Do you have a working understanding of the grantor’s intent as well as the terms of the trust?
Do you understand and have you fulfilled your duty of loyalty?
Have you been diligent and attentive to your duties related to your fiduciary role?
Have you avoided conflicts of interest that enrich you at the trust’s expense
Have you have been open and transparent about potential conflicts and your decisions related to them?
Do you have a track record of looking for ways to improve your work as Trustee?
Have you communicated and documented your activities proactively to the appropriate parties?
Is the corpus being thoughtfully invested considering purpose and terms of the trust?
Are you reviewing the impact of new legislation as well as changes to federal and state tax law to understand possible impact on the administration the trust?
Is a clear succession process in place for your role in the event of your death or disability?

This is hardly meant to be an exhaustive list of what you might want to review annually if you are serving as a fiduciary. If the answer to any of these questions leaves you uncertain please contact us to have a confidential conversation about how we might help you assess and improve your situation.