Serving as Trustee During Turbulent Times

March 23, 2020

David Raymon is an attorney in the Burns & Levinson’s Private Client and Trusts & Estates Groups. Dave is a JD/CPA, which has equipped him with a unique skill set that he uses to advise clients on tax and non-tax aspects of their estate planning, fiduciary duty actions, and other probate and trust-related controversies. Clients appreciate Dave’s perspective on legal issues, which often include a very personal component, and his guidance in evaluating options. He can be reached at draymon@burnslev.com or 617.345.3341.

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Trustees face unique vulnerability during this unprecedented health and economic crisis. Tasked with safeguarding trust assets, trustees must take decisive action in an unpredictable environment. Decisions made now will later be evaluated with the benefit of hindsight, and trustees face potential personal liability for mismanagement. It is critical that trustees prepare themselves by understanding their duties and the ever changing landscape in this uncertain time.

1. Understand the terms of the trust. Trustees may face increased pressure from beneficiaries to make distributions to replace income that may be lost due to the economic shut down. It is critical that trustees understand the terms and purpose of the trust to assess whether and when distributions are appropriate, and in what amounts. Depending on the terms of the trust, a trustee may have an affirmative duty to investigate and evaluate a beneficiary’s  need for distributions without the beneficiary requesting it. In such a case, a trustee could be liable for inaction.
2. Income tax returns. Trustees are responsible for myriad tax, legal and other administrative tasks which cannot be ignored due to an economic shut down. Income tax returns must be filed and any tax due must be paid timely. This means the trustee must stay abreast of shifting filing deadlines and their application to trusts. Pursuant to IRS Notice 2020-18, the due date for filing federal income tax returns and making federal income tax payments including the estimated quarterly payment due April 15, 2020, is automatically postponed to July 15, 2020. No filing is required to secure the postponement and there is no limitation on the amount of the payment that may be postponed.
3. Cash flow planning. Trustees always need to plan ahead for cash needs. During this period of market uncertainty, proper planning is even more critical to avoid having to liquidate assets at an inopportune time to raise cash. Trustees must consider future tax payments and expenses as well as anticipated cash needs of the beneficiaries and be sure to maintain an appropriate reserve.
4. Trusts holding marketable securities. Trustees have the duty to prudently manage trust investments. Ordinarily this means investing to ensure reasonable returns and growth. However, in times of economic tumult, this may mean preserving trust assets by cutting losses. Investment portfolios should be appropriately diversified to spread risk across industries and asset classes. Thoughtful and educated analysis must inform decisions. Trustees should not panic and exit the market at a low point, nor should they make risky investments with the hope of winning big.  
5. Trusts holding other assets.  In times of economic uncertainty, the Trustee’s duty to safeguard trust assets becomes particularly significant. It is common for trusts to own a diverse array of assets from real estate to artwork to closely held companies. Each has its unique risks.  In most cases, trust property should be insured. Trustees should review insurance policies (or engage counsel to assist them) to understand coverage in the current climate. Where a beneficiary ordinarily manages trust property, as is often the case with real estate at which a beneficiary lives or a company with which a beneficiary is involved, but no longer has the means or ability to do so, the Trustee must make arrangements to fill the void.

As our economy and workforce collectively weather the spread of COVID-19, we will continue to keep you updated with the latest “need to know” news and ideas to help improve your business practices in this unprecedented time.