Tax time is here and you will be meeting with your key client to review finances and get an update on what is going on with their business and life. After sharing business and family issues for decades, as well as a common perspective, it is natural for an accountant, as the trusted advisor and their client to develop a personal relationship that extends beyond their professional one. It is understandable in that case for a client to name their accountant in the estate plan as their trustee. The client wants the trustee to guard a whole host of goals and dreams that go beyond the preservation of the assets/wealth.

Your client believes that you, as their most trusted advisor, understand them, have the wisdom to incorporate the donor’s most important values, both spoken and unspoken. However, the dual responsibility of the advisor/trustee can blur the parameters of those roles and may have legal and financial ramifications. Indeed, the very blurred or hybrid nature of the advisor/trustee’s role offers advantages and disadvantages, risks and opportunities.

The CPA’s Role As a Trustee

When your client becomes disabled or dies, you then serve as a trustee with fiduciary responsibilities to the trust and to its beneficiaries. Even though you should give credence to your client’s intent, you must switch your duty and loyalty from your client to the trust, in which the standard for decision-making in your role as trustee is significantly different from the role as a trusted advisor.

Your clients can do anything they want with their assets, business and money. They can take risks. If their net worth or income declines, it is their responsibility to deal with the consequences. When you take over, the problems exacerbate. As a fiduciary, you cannot take that same level of risk, since it is not your money, your assets or your income. As a trustee, you are obligated to preserve it for the beneficiaries. You cannot act in the same role as your client or even in the same role you had as the trusted advisor to your client.

For example, your client may not be operating their business strictly with a standard of profitability. They may be making business decisions for other reasons, such as employing friends, keeping on older employees who are no longer productive but who were loyal during their lifetime or running a division of the company just for the fun with of it, regardless of the economic consequences of that decision. The problem is intensified if one of those nonproductive employees is a family member who may also become a beneficiary of the trust. When you take over, you cannot maintain those decisions or take those same risks.

The combination of dealing with the disability or death of a friend and significant client, switching roles, understanding the risks and navigating the family issues is a Molotov cocktail — and where the trouble begins.

Serving as trustee is not a bad idea. However, as a trustee of your client’s wealth, you will need to deal with whatever heartache your friend/donor left behind. It can be gratifying work to earn fees, while helping people/families in a significant way. The problem arises when you have to deal with a set of circumstances which might impact the family and succeeding generations.

Six Tips to Ease the Transition

Following these six tips can help you become a better trustee for your friend.

1. If you are a trusted advisor, seriously consider whether you want to take on the “mess.” The family may be better served by a dispassionate third-party, leaving you to continue in your role as trusted advisor and maintain your authority as wise counsel, a role in which you might best serve the family. Only take it on this new role if you sincerely believe you can make the greatest contribution by assuming the dual role of advisor and trustee.
2. If you decide to take on the role of trustee, make sure that everybody in the family knows it and can give at least tacit approval.
3. Develop a resource with whom you can discuss the many dilemmas you face. Get your own trusted advisor. Remember that the one factor that may have led to your considering your dual role is the savings in advisor fees that might be achieved. That advantage diminishes the reliance you place on your own advisors.
4. Consider serving as a co-trustee, rather than a sole trustee. Partnering with a financial institution that serves as a professional trustee can be an important buffer with tremendous resources. Established trust services with decades of experience have dealt with any issue you may face many times before and will be less burdened by the emotional connection you have to your founder.
5. If you decide to take on the role, review the legal documents before you agree to serve in that capacity ensure you:

1. Understand the scope of your responsibilities,
2. Are comfortable with the investment and business risk that are associated with the trust assets,
3. Have the right to resign,
4. Determine who would appoint a successor in your stead, the grounds by which you may be removed as trustee,
5. How you will be compensated, the language by which you will be liable for your actions or inactions and
6. The right to seek reimbursement from the trust for your legal fees and expenses.

In particular, check your insurance and indemnification arrangements. For example, a lawyer-trustee presents a mixed professional role to their insurer. Do not assume that a lawyer’s errors-and-omissions policy covers trustee functions.

6. If the estate plan includes “riskier assets,” such as a closely held business, encourage your client to understand that after his death or disability, the fiduciary has risk in operating the business that your client did not have. Make sure that your client’s intent is stated clearly in the document along with the risks associated with serving as trustee. If, for example, your client wishes the trustee to hold the business as a trust asset, the document should state that and should also state that your client understands the risks associated with that decision and the trustee is authorized to maintain it even if it is not a productive asset or declines in value or does not produce income. For example, it can be helpful to have the client’s intent expressed in an outside “Mission Statement” that notes that you are the trustee and beneficiaries cannot force you to sell the business or lay off key employees.

Conclusion

At its best, the advisor/trustee role is greater than the sum of its parts. Your ultimate decision will turn on a combination of intellectual analysis and simple emotional response.

Patricia M. Annino, JD, LLM, a nationally recognized authority on estate planning, received the Boston Estate Planning Council’s Estate Planner of the Year Award in 2007. She chairs the Estate Planning practice group at Prince, Lobel, Glovsky & Tye LLP. Her peers have voted her as one of the Best Lawyers in America (trust and estates), a SuperLawyer and a Top 50 Massachusetts SuperLawyer. She is a fellow of the American College of Trust and Estates Counsel (A.C.T.E.C.).

* The AICPA’s PFP Section provides information, tools, advocacy and guidance to CPAs who specialize in providing tax, retirement, estate, risk management and investment advice to individuals and their closely held entities. All members of the AICPA are eligible to join the PFP section. For CPAs who want to demonstrate their expertise in this subject matter apply to become a PFS Credential holder.