Introduction – the role of a trustee
The role of the trustee in family law should not be underestimated. Trustees are a vital part of the family lawyer’s toolkit, providing services that are much-needed in family arrangements.
Good family lawyers know how to use a trustee, and often, in more ways than one.
A trustee can act on behalf of the beneficiaries when they cannot act in their own best interests.
The law also offers protection for assets which form part of a trust.
It is also important to understand, the trustee’s relationship with the beneficiaries is a fiduciary duty, which protects the beneficiaries.
So, let’s start.
Who is a trustee?
A trustee is a person who administers a trust. (Shortly, we will look at what a trust is.)
But more importantly is to understand that a trustee, who administers the trust, does so for the benefit of others – the beneficiaries.
The beneficiaries are a clearly defined group, and the trustee manages the trust for their well-being and enjoyment.
In other words, the trustee is normally an administrator, not a beneficiary.
What is a trust and who does it serve?
A trust is a fiduciary relationship which is set up by a settlor, who appoints the trustee to administer a certain asset or property for the benefit of a certain group of people.
The assets and properties which are being managed by the trustee under this appointment are known as the trust.
The settlor would normally set up the trust through a Deed of Trust. The Deed of Trust would define what assets form part of the trust.
The trustee manages the trust for the benefit of the designated beneficiaries of the trust. The beneficiaries would normally be described in the Deed of Trust, so that the trustee would know, who should benefit from the trust.
To recap how a trust is set up….
First: A trust is established by a settlor.
Second: The settlor establishes the trust through a Deed of Trust.
Third: The settlor appoints a trustee to manage the trust.
Fourth: The trustee administers the trust for the benefit of the beneficiaries.
Why is a trustee important in family law?
It’s easy to understand that a family would have old people and young people. People from multiple generations living together.
It’s not so easy to understand that the older generation may be afraid of how to pass their wealth to their younger generation.
The Chinese have a saying that wealth doesn’t last beyond three generations. The first generation builds wealth, the second generation maintains the wealth, and the third generation squanders it away.
An American saying that reflects this is “From shirtsleeves to shirtsleeves in three generations”.
So, how can family elders preserve their wealth for more than three generations?
One way is to educate the younger generation in the judicious use of money. That takes a lot of time and effort, but it could pay off when the kids learn why and how they should preserve their wealth.
But not all children are so obedient, and some marry spouses who have nothing more on their minds than to rob the family’s coffers and have a good time. (Children are fallible too, so you’ll have to forgive them.)
Hand over all the wealth immediately, and the younger generation may spend it immediately.
There has to be a better way, right?
This is how a trustee helps in wealth planning
An older family member who holds a large concentration of the family’s wealth can structure a trust.
That trust will be managed by a trustee, for the benefit of the future generations.
The trustee can be given instructions on how the assets in the trust are to be used. How they are to be invested and re-invested for purposes of protecting and growing the value of the property.
A trustee may even appoint a wealth manager or an asset manager if it is allowed in the terms of his appointment. (After all, not all trustees are so good with growing wealth. They are usually better at keeping the trust assets properly locked up.)
With clear instructions, a trustee can then disburse funds from the trust for the intended purpose of the settlor. Often this includes education fees, living expenses, and such. (How much can be paid out, often depends on the size of the trust.)
So who can be a trustee?
Sometimes, it’s a professional, like a lawyer, who is appointed. But lawyers pass away, and the trust may outlive them.
It may be wiser to appoint a law firm instead of a lawyer, because a law firm can outlive a lawyer as long as it has partners running the firm.
Wiser yet may be to appoint a corporate trustee, which is incorporated as a company. Companies have an indefinite shelf life and can continue to exist for hundreds of years.
In Malaysia, there exist various types of trustees, giving a potential settlor plenty of options.
Some scenarios for using a trustee
For the wealthy, they may consider setting up a trust so that wealth doesn’t fall into the hands of a greedy daughter-in-law or son-in-law through a divorce.
They may also decide to appoint a trustee to make sure that the assets are disbursed and transferred to future generations in stages, so that grandchildren and even great-grandchildren have assurance that they will inherit something.
There may be a mentally disabled person in the family, and the wealth of the family can be allocated in part, for the treatment of his or her mental health.
Sometimes assets are too easily dissipated. It’s better to keep them in the hands of a trustee who will administer the assets for the benefit of the beneficiaries.
The trustee could be given instructions on when the assets are to be transferred to the children and grandchildren. (Of course, you didn’t think that the trustee would be sitting on the wealth for all perpetuity, right?)
Trustees are an important part of family law. They can be part of wealth planning and estate planning.
But for some wealthy families, trustees can also be a part of the protection against a potential family dispute. Whether it is a dispute between spouses, or between generations, or between members of a future generation, the applications are there. Trusts can be seen as a shield, protecting future generations against the storms of time.
Just so that the point isn’t lost, lawyers can act as trustees. So can law firms. Or a law firm could instruct a trustee to act on your behalf.
Thanks for reading.
This article has been prepared for general information. Please don’t treat it as legal advice for your situation as your situation may be different. Please consult with a lawyer before making any decisions with regard to the content of this article.