The Role of the Trustee:
As you can readily understand from the discussion
of charitable remainder trust investment policy, the
role of the trustee is crucial to success. While trust
management can be complex and time consuming, in most
situations the trustee can usually handle the work with
occasional assistance from an attorney or investment
planner.
There is a natural tendency on the part of a donor
to want to serve as the CRT trustee, and the law does
not forbid this dual role. However, as noted before,
this arrangement immediately raises questions of
conflict of interest, especially about the character of
investments the trustee may choose. A donor who does
not serve as trustee still has a significant degree of
continuing control, because the donor can reserve the
right in the trust declaration to change the trustee at
any time. The donor can also ask the trustee to change
the nature of the CRT investments from low-yield growth
assets to high income investments, at any time the
donor/beneficiary needs steady income.
Realistically, the creation and operation of a CRT
usually means there is a close working relationship
between the donor/beneficiary and their personally
chosen trustee. In a serious dispute, the beneficiary
can always look to the courts to protect his or her
interests, if the trustee is thought to be engaged in
activity inimicable to the best interests of the trust.
The duties of a trustee include selling at the
best price possible the appreciated assets transferred
to the trust; investing the proceeds from the sale in
the manner that will best advance the trust goals;
arranging the cash flow needed for periodic
distributions to beneficiaries; annual evaluation of
trust assets; filing federal trust tax forms (IRS forms
1041A and 5227); maintaining a trust bank account and
accurate records of income, expenses, payouts and
accumulations of income and capital gains; and,
informing beneficiaries of how they must personally
report annual payouts for tax purposes.
For obvious reasons, if the donor/beneficiary does
serve as a trustee, it is highly advisable to have a
co-trustee with full authority to make the annual value
determination required in a unitrust CRT, so there will
be no question about impartiality.
Another approach that is little known, but of
great utility, is for the donor to be the trustee, but
use a firm specializing in the administration of
charitable remainder trusts to handle the accounting,
tax returns, and often, retaining investment managers.
