CRTPro The Trustee & the TrustMaker

As a CRT trustee, you should already know that it is the trustmakers (also known as the trustors, donors, creators, or grantors) that appoint the trustee. And, therefore, you should also know that most trust documents allow trustmakers the power to fire a trustee too. Most CRT trust documents allow the trustmakers to fire the trustee, and a small number of trust documents even grant power to the income beneficiaries to remove the trustee. Removing a trustee, however, is uncommon since most trustmakers take a relatively passive role in the trust.

"...most trust documents allow trustmakers the power to fire a trustee..."

Trust performance is the duty of the trustee, not the trustmaker. When CRT creators review their trusts (usually annually from the annual report), they consider investment results along with timely, accurate tax reporting as the most significant gauges of trustee performance. They want to know, first and foremost, that trust assets are not losing money. It’s one matter to not quite meet the anticipated rate of return, but quite another matter to lose money and see the trust fair market value decline from the previous year. This ranks up there with getting IRS audit paperwork, and is the number one cause of trustor complaints. Investment performance will be the first thing trustmakers will look at on the annual reports. There is often more trustor feedback from a simple comparison of beginning trust value to ending trust value than all the pages of trust reporting combined! It seems to draw all the attention. The trust could have been rife with inconsistencies, but the donor is happy if the trust ended with a higher value than it started with at the beginning of that year. Trustmakers also expect prompt, accurate tax reporting of their trust. They usually don’t question the accuracy of the tax reporting because of the complexity of it all.

"...the donor is happy if the trust ended with a higher value than it started with at the beginning of that year."

But they do know when forms are to be filed and they expect the trustee to meet these deadlines. Many trustees are overly concerned with trust fees and expenses. There is a common feeling among trustees that an elaborate presentation to the donor is necessary to justify any fees and expenses charged. Annual trust reporting is an essential duty of the trustee, but producing an excessive amount of figures and paperwork is not what the donor wants. Donors don’t want to get confused over trust reporting after all the work that was done creating the trust to begin with. They want affirmations that the strategy is going well and the trust is performing the way they intended it to. And they want it on a one page summary that’s easy to understand. Trustees should spend less time trying to validate their roles to the donors and concentrate more on the bottom line—trust performance. CRT creators already know how important the role of trustee is and they are willing to pay for it to be done right. When all is said and done, the majority of trustmakers want most of all to know that their trust is “staying the course”.

"Trustees should...concentrate more on the bottom line--trust performance."

There is a growing number of trust creators that are not passive at all. In fact, many of them are quite aware of their rights and powers and do very well independantly. Most of these trustmakers are naming themselves to be the trustee. These trustmakers want to retain control and potentially save money on trustee fees. They are most likely individuals that were actively involved in managing their own assets before they created the trust. They feel confident that, with the help of a professional advisor, a third party administrator, or a independent co-trustee, they can do it themselves. If you serve as the trustee of your own CRT, you must carefully consider the implications of such an arrangement. For example, retaining the power to allocate income among income beneficiaries (sprinkling powers) could cause the trust to be considered a grantor trust and may disqualify the trust as a CRT. Other issues include holding hard to value assets in the trust, self-dealing and step transactions. There are some who feel that a trustmaker acting as his/her own trustee retains too much control over trust assets and should disqualify the trust but this is not the case. The IRS has reported in their 2004 SOI report that nearly one-third of all trusts filed were self trusteed.

"...IRS reported..that nearly one-third of all CRTs are self-trusteed."

Self trustee issues can be addressed with careful planning and there are legitimate reasons for trustmakers serving as self-trustee. Who else knows the three CRT triangle parties better? Who better understands the trustmakers intentions that led to the creation of the trust in the first place? It is clear that self-trustee arrangements are supported legally and despite the hazards, are quite advantageous for the basic CRT. Whether you are a trustee of our own trust or you work for an organization that is named as trustee, it is imperative that you understand the scope and meaning of the trust from the trustmakers point of view.

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