Interview with Dan Felix - The Professional Trustee

Interview with Dan Felix - The Professional Trustee

Article posted in Values-Based on 13 January 2015| comments
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Summary

Dan Felix and I discuss the role of the trustee and point out some of the pitfalls as well as some of the benefits of various selections.

Randy:   It’s December 11, 2014, and I’m here today with Dan Felix.  Dan is The Professional Trustee and lawyer.  He is still a member of the bar, but not practicing law actively.  He’s currently holding himself out and serving as an expert trustee.  And Dan, to start with, would you just define what a trustee is and what the duties of a trustee are?

Dan:   Sure, how much time do we have?  A trustee is a position holder, just like a president of a corporation is a position holder.  Like a corporation, a trust is an artificial configuration that has certain players.  A corporation has a president and other officers that are shareholders and sometimes others.  A trust has the person who creates the trust that is sometimes called the grantor.  I like the term “trust creator” and it has a beneficiary or beneficiaries, which can be a person, a family member, it can be a charity or philanthropy and someone who is responsible for making sure things happen, the trustee. The trustee is in charge of making things happen.  What the trustee does is a function of the trust document and the law of the trust, and his understanding and interpretation of it.  A lot of people think that the trust is just something that really doesn’t need anybody.  The document is there in black and white, people sometimes say, why do I need anybody to administer it?

To illustrate what a trustee does, I emphasize to those people who say that it’s just a question of following directions, miss an essential point.  That is that any document is capable of multiple interpretations.  Even when we look at other fundamental documents like the United States Constitution, that takes a whole team of people and we can say even then nothing gets done, but the idea is that it makes a difference who is serving in the different roles as to how the Constitution is carried out.  And that’s the same thing to a much smaller scale with a trust. 

Randy:   Dan, can you give me an idea of some of the duties of the trustee, and let’s just discuss a typical living trust for purposes of simplicity. 

Dan:   We call it a living trust, because a person, the trust creator, sets it up while he’s living, and he gets to change it as he wants while he’s living.  But once he is incapable of acting, either because of disability or death, then the next trustee, the successor trustee, steps in and has to now do what that trust creator wanted to. This document doesn’t exist in a vacuum.  It exists first of all in the sea of laws, so that if I hand you the microphone and say, “This is my microphone, Randy”, and I give it to you in trust, there’s a whole body of law that will fill in and say what those responsibilities you will have around that microphone.  I think I have to say, “I give it to you in trust for my children or for a certain charity”.  So, the trust document is informed by the laws and it’s also informed by any directives that are additional written instructions that might not be included in the will, but maybe wrote me a letter at some point and said, “Dan, in regards to taking care of my trust, I’d like you to keep in mind X, Y, and Z.” 

Let me add a level of complication if that isn’t enough, because what a trustee does is a little bit like what a babysitter does, and I’d compare it on a very simple level to the note that we all used to leave on our refrigerator door with a magnet for the babysitter to say, “Buffy should be put in bed by 8:00, and if she asks for a glass of water, give her one; whereas Jody goes to sleep at 10:30 and don’t give him any water.”  Within that realm the babysitter has to deal with the kids through his own discretion.  There is some wiggle room, because something may happen, and the parents may not be available.  And certainly in a trust, there is no way to ask the trust creator any questions, because he’s disabled or no longer with us.  There’s a whole other level in serving as trustee in applying the instructions that is in carrying out the wishes of the trust creator in the present, in the real world with real living people. 

You’ve heard the phrase that we don’t always know what is going to happen. In fact a lot of times it’s amazing what actually happens.  So, the trust creator, being mortal, can’t anticipate everything and it’s the trustee’s job to figure out, in these changed or new circumstances, what are we going to do? 

Randy:   So, isn’t the typical situation where the trust creator names his spouse or one of his kids as the successor trustee, and if that’s the case, what are the pluses and minuses of doing that? 

Dan:   I think there are some advantages and some disadvantages of that.  The advantages are certainly proximity and knowledge and love.  In other words, hopefully no one loves the incapacitated trust creator better than the spouse or the child and will go out of their way to make sure that the right thing is done.  Similarly, in the case of incapacity and the family is, for instance, feeding their incapacitated father and the spouse and children know that he doesn’t like mushrooms, and he loves this certain food and he loves that music, but don’t turn on this TV channel. All those wonderful details that give us joy and give us pain. That knowledge and that love are really powerful and priceless.  And the knowledge may even extend further, especially if the family has been able to have deeper discussions about what care should look like. If the directives on how you want to be maintained or not be maintained during a period of disability have been thoroughly communicated, that is a completely different circumstance for the family.  It’s a great boon to know that and understand that when that’s shared.  Unfortunately, far too often that’s not shared.

The downside of having family serve is first, that they’re not knowledgeable about the process or responsibilities.  In fact, stereotypically they’re ignorant. They don’t know what it means to be a trustee.  They don’t know what the legal and family implications of it are and they are significant.  I haven’t even gotten to the point of talking about someone who has bad intent or somehow is oblivious to the feelings and the wishes of the other family members.  I’m talking about a family member who is well-intentioned, that has not been trained and also doesn’t really have the time to be trained.  Most of us have our busy lives already, and serving as a trustee can take a lot of time and it can take time at various parts of the day.  It’s not something you can do on the weekend. Those downsides may be overcome with education and sharing and work in advance and may require taking some leave from the job.  But if not overcome, they can be very big downsides. 

If I can take it a step further, there are some classic problems in certain families.  For example, in a blended family we have the trust creator, who is really the glue who has kept the family together.  Now you have the second wife and the adult son and daughter from the original marriage and they may even like and respect each other, but their trajectories are typically going in different directions.  One of my mentors, Timothy O’Sullivan, is the only one I know who has actually studied the subject of family harmony in the context of trusts and intergenerational transition.  He studied it from the standpoint of trusts and the legal structure.  He has said, “That’s a recipe for disaster to name a family member as trustee in a blended family situation.”  We all like to think the best of everyone.  The dark side of the whole thing is that, at least in here in Chicago, there is a huge uptick in families that are just breaking apart because of the family member serving as trustee, because of the lack of preparedness of the family and the trustee to serve in this function.  In fact, there’s a spike in litigation; that is families fighting each other in court over how things should be handled. The family member has been a spur to both that litigation and the family’s breaking up. 

Randy:   The other alternatives typically are the lawyer who drafted the document or some major institution like a bank or a trust company.  Is that the most common alternative, Dan?

Dan:   Certainly they are out there and they’re doing well.  We hear the banks, at least, announce how many billions of dollars they have under management in trusts.  And certainly the institutions have that institutional stability and have a lot of special services they offer especially to the high net worth and ultra-high net worth clients. 

Randy:   What about the attorney who grants the trust or…is that a common….

Dan:   I am an attorney.  I’m biased against that for a couple of reasons, although I’m sure there are good trust and estate attorney trustees out there.  They certainly know the law.  One of the points I give when I lecture to lawyers about what it takes to be a trust administrator; the law is like the outside boundaries as opposed to the best practice.  Just because you know the rules doesn’t mean you know how to play the game.  I mean, you can know the rules to baseball, but that doesn’t mean you’re going to be a great baseball player or have a great baseball team.  More proactively, when I’m trustee, I like having the trust and estate attorney at the table as well.  In other words, I think there’s a value for the family in having the trustee be a separate person or firm from the lawyer.  There continues to be legal issues from time to time.  One might be interpreting the trust from a legal point of view.  There are sometimes additional issues that have to be taken care of, of all types, and it’s nice to have the attorney who is an attorney and who can be brought in to do that as opposed to not having that independent separate voice.  I know there’s a great tradition of the lawyer/trustee.

I guess my point is one size doesn’t fit all, and the initial issue, I think a family in choosing a trustee needs to consider is what do they want the trustee to do? 

Randy:   But, how does the average family know what the responsibilities are let alone what the trustee should do, if they are as you say not educated or not aware.  

Dan:   I’d like to think that there is a trusted advisor around to coach the family to think through how they want the transition to work.  It’s rarely as easy as that, because first of all there’s disability, which is affecting more and more of us.  There is this ongoing period. It could be many years where the trustee has to serve. If the family is able to consider that the trust creator and the family agree, “Okay, well here’s how we would do that and here’s what we would want the trustee to do.”  What you would have your trustee do if God forbid you were disabled or die tomorrow is different than perhaps five years from now, 10 years from now, 20 years from now.  And the nice thing, as long as we are able to deal with that living trust that you threw in back at the beginning here, is that can be a source of ongoing conversation.  I also think there is a power in that ongoing conversation to help the family build both a vision of how this transition is going to work, but also to build the overlook decision making function, because part of the reason these families are breaking up when the litigation happens is because they haven’t exercised good governance. We could simply call it decision making.  You have some consensus about how decisions are going to be made. 

A lot of trust creators have the illusion to say, “Well, it’s my money and it’s my body and I get to decide.”  But if you’re not there to enforce it and you have family members who say we should turn left and some family members who turn right, we have to have some mechanism to resolve it.  To say that differently, the trustee needs at least acquiescence from the other family members and parties to the trust.   

Randy:   I think in the family it’s probably a thankless task. 

Dan:   Particularly as trustee because people don’t know what it involves and it can take an enormous amount of time.  And typically the expectation is that the family member will serve for free.  And it’s one of the daughters who steps up and serves as both care manager and caregiver.  They really get beat up by it, because that is not only a thankless job, but that is even more exhausting both physically and mentally. I stay on the property and financial side, but obviously I have to work with and pay for some of the things that the care manager needs, and that’s particularly terrible.  You’ve heard also about the surviving spouse or the child who ends up collapsing under the weight of the care responsibilities before the disabled trust creator expires.  It’s really another big issue that the family, again being the most proactive and careful should really address in advance. 

Randy:   So, let’s kind of sum up and wrap up.  It sounds like if I’m hearing you correctly, that for a family member to undertake the task of trustee, it is wrought with several complications.  One being their lack of knowledge and two being the amount of time they have to commit and the time not being necessarily fundable, but they have to do what has to be done as opposed to, “I’ll just handle this on the weekend.”   

Dan:   Right, and the third thing, that’s one and two, and the third thing is getting the buy-in of the other family members.

Randy:   Right, and the other is overcoming years of whatever sibling rivalry or difficulties there have been in the family to all of a sudden make that go smoothly without any intervention by anybody, which we all know is going to be a struggle.  

Dan:   It doesn’t even take some rivalry or trauma, although that’s hard to avoid, but even many families have opposites reflected in the children.  You have the artistic warm and fuzzy in one child and the other child is all business and very sharp-edged and blunt.  So, how do they reconcile?  I think in certain ways it’s a gift, because the best way of thinking a family represents a diversity of opinion, but again they haven’t practiced decision making around anything.

Readers, what have been your experiences with trustees?

Click here if you would like to listen to the audio version.

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