The following article was written by Kim Stone-Vilim, CPA. Kim is the Accountants Program Manager at All Risks, Ltd. in Geneva IL. She can be reached at email@example.com.
You receive a message from a client: “Hey Mr./Ms. CPA, you’ve been my accountant for several years, and I’m finally getting around to putting my estate together. Would you serve as my trustee?”
This seems like an innocent enough question and a way to earn some pretty easy fees. Who wouldn’t say ‘yes’? Well, not so fast!
CPAs are often the first choice to serve as trustees due to their tax and financial background. They usually have the most knowledge about a client’s financial situation and are a neutral party. However, taking on the role of trustee can come with some big risks, so careful consideration is required before accepting.
Many CPAs are asked to serve as trustees because the client’s family members may not have the necessary skills or the client suspects a family member may have personal interests that may interfere with the proper administration of the trust.
Before you accept the trustee role consider the following:
- Does the client have any problems with his or her children, other family members or potential beneficiaries?
- What investments make up the trust?
- Is the client involved in litigation?
- Are you the sole trustee or are you serving with other family members or other professionals?
- What decision making authority will you have over the trust assets?
- How large is the estate?
It is usually best to serve as co-trustee, another set of eyes overseeing the affairs of the trust. If you are to handle trust assets, it is generally a good idea to hire a financial adviser. Both of these safeguards can help in the event of a lawsuit related to the trust. Also, verifying the size of the estate can help determine the risk involved. The larger the trust/estate, the more money there is that could be lost or investments that may decline in value, subjecting you to litigation.
If you decide to serve as trustee, determine upfront how you will be paid for this service. Will you charge an hourly fee or be paid a percentage of the estate value? This agreement should be documented either in a separate engagement letter or written into the trust document. In most cases, these fees need to be earned by the accounting firm, not the individual named in the trust, for this work to be covered under the firm’s errors and omission insurance. Be sure to check with your insurance carrier on this.
If you accept the role of trustee, the following steps can help get you organized and assist in your defense in the event of any future litigation. Consider doing the following:
- Obtain a copy of the trust agreement and read it carefully. If any items are unclear, consult with the client and/or client’s attorney for clarification and obtain that clarification in writing.
- Confirm all the services you will perform are noted in the trust document; if not, get them included or obtain a separate engagement letter for this work.
- Obtain copies of all financial information, including stocks and bonds, retirement plans, real estate, long-term care and life insurance contracts.
- Consult with other trustees and notify beneficiaries that you are a co-trustee.
- Set up safeguards, such as approval of all bills by beneficiary before payment, and approval by beneficiary of changes to or sale of any investment vehicles.
- In conjunction with other trustees, hire a financial adviser.
- Confirm whether you or another CPA will be filing the tax returns. If you will be completing them, obtain a signed engagement letter for this service.
- Determine how often an accounting will be given to beneficiaries. It is recommended that this be done quarterly, but yearly at a minimum.
CPAs can be a good choice to serve as a trustee, and can provide a valuable service for a client. Just be sure you and your client have a clear understanding of your duties and responsibilities. Don’t favor one beneficiary over another, and be sure to administer the trust using reasonable care and the “prudent person” standard, a term generally used by probate courts in determining whether or not a trustee has performed duties satisfactorily.
Reprinted with permission from the Pennsylvania CPA Journal, a publication of the Pennsylvania Institute of Certified Public Accountants.