Tips for Managing a Family Pot Trust in New York

Family post trusts are a special type of trust that allow a trustee to allocate distributions among a class of beneficiaries and are often implemented because of the increased flexibility they offer regarding distributions. Unfortunately for trustees, administering these trusts is hardly straightforward and he or she will often have to manage delicate family situations and competing interests between beneficiaries. In situations where animosity exists among family members, these dynamics can create discordant expectations so clear guidance in the trust becomes a critical aspect.

While managing a family pot trust, the trustee (the individual tasked with administering the trust on behalf of beneficiaries) must keep in mind his or her fiduciary duty to the beneficiaries required under the law. This includes acting an impartial manner in order to treat beneficiaries in an equitable and equal manner in accordance with the conditions laid out in the terms of the trust. Essentially, the trustee of a family pot trust cannot favor one individual or class of beneficiary over another, unless specifically authorized by the trust.

To help make managing the trust easier, trustees should consider keeping a running total of all the distributions made to various beneficiaries, thus enabling him or her to know if all the beneficiaries are receiving benefits equal with the grantor’s wishes. Additionally, trustees should proactively communicate with beneficiaries in a direct manner to manage personalities and needs as well as financial duties under the trust. Such communications should also be documented as a hedge against any possible legal action taken by a beneficiaries who may feel slighted in some way.

Under New York trust and estate law, trustees have a duty to inform and account that requires the administrator to disclose certain information about various aspects of the trust including its existence, terms, assets, distributions,and expenses. Failure by the trustee to do so on at least an annual basis could result in the denial of commissions and although a trustee may sometimes feel pressure by some of the older beneficiaries to limit information to others, he or she must make these communications or otherwise face claims of breaching their fiduciary duty.

To help guide trustees in their fiduciary duties, grantors should include a statement of intent with the trust’s documents outlining whether the trustee has absolute discretion to manage the trust or abide by the legal standard. For example, the trust may provide that the trustee is encouraged to exercise discretion liberally, or that trust assets be used to only to supplement but not support a beneficiary’s lifestyle.