CRTPro The Trustee & the Beneficiaries

There are two types of beneficiaries of a CRT. The income beneficiary and the remainder beneficiary (sometimes they are known as the charitable and non-charitable beneficiaries). This is why the CRT is often referred to as a split interest trust. Income beneficiaries are named in the trust document as the recipients of the regular trust payouts. The income beneficiaries really don’t have much say in the scheme of things. But there is one caveat. The majority of income beneficiaries are also the trust creators! It’s needless to say that making them happy is of great importance. And, as you can guess, the timing and accuracy of trust payouts are key here. Income beneficiaries don’t want late trust payouts. There are usually a lot of promises made in the trust planning stages regarding trust payouts. The last thing the income beneficiaries want to do is contact the trustee and ask when the payout is coming or why it is late. Especially not after being sold on how automatic the payments were going to be. One of the best things a trustee can do is to send notification to the income beneficiaries of upcoming payout dates.

"The last thing the income beneficiaries want to do is contact the trustee and ask when the payout is coming..."

The remainder beneficiaries are the named charities that receive trust assets when the trust is terminated. Chances are, the charity had been waiting quite a while to finally receive their planned gift. The remainder beneficiaries have a vested interest in the trust from inception, they just have to wait to receive it. During the life of the trust, the remainder beneficiaries look to the trustee for compliance, investment performance, and impartiality, among other things. There exists a subtle but very important difference between remainder beneficiaries and income beneficiaries. Both want the trustee to meet or exceed investment rate of return projections. But remainder beneficiaries will be more inclined to scrutinize the investment decisions of the trustee, even if it seems the trust is chugging along smoothly. How could they be so unappreciative, you ask? The truth is no charity would be unhappy receiving this kind of donation. It’s a matter of how well the trustee is safeguarding trust principal, which a large portion of is to be transferred to the charity at some point in the future. The key here is risk management. Non profit organizations are quite risk averse by nature. The idea of a trustee speculating with their future gift is enough to make their skin crawl. This problem, of course, is not an issue when the charity itself is the trustee. But if you are the trustee, you can help yourself and the charity if you communicate the trust’s investment strategy to them. In the case the trustmaker wishes to remain anonymous, documented annual investment strategies are a good idea.

"...the remainder beneficiary has a right to know that the trustee managed the trust assets prudently."

Again, no charity wants to challenge the gift, but in the case of a charitable remainder trust, the remainder beneficiary has a right to know that the trustee managed the trust assets prudently. If the charity had no knowledge the trust even existed until the trust terminated and the final transfer was made, the only way the trustee can justify the trust’s investment policy is by providing documented annual investment plans.  As trustee, before you contact any charitable remaindermen, make sure you get approval from the trustmakers first. Some donors wish to remain anonymous. More and more trust documents are allowing trustmakers to replace charitable remainder beneficiaries with other qualifying charities. This gives donors more control over their charitable goals, especially if their charitable goals change over time. Understandably, charities like to know whether their gift is irrevocable or not. Trustees must be aware of their fiduciary relationship to the trustmaker, with confidentiality being key. Charities will probe for information that can help them plan for the future. Whether or not certain trust information is released to the charity is up to the trustmaker.

"Trustees must be aware of their fiduciary relationship to the trustmaker, with confidentiality being key."

Even charities that are acting as trustee need to pay attention to privacy issues. Many charities agree to serve as trustee even though they are not the sole remainder beneficiary. One of the best methods of clarifying donor intentions is having trustmakers complete forms that address these issues. These documents give the trustee a permanent record to file and builds confidence in trustmakers that their intentions will be followed by trustees.

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