Reduce trustee risk
If you’re going to stick your neck out and be a trustee, you need to eliminate unnecessary risk.
Of five key challenges advised by professional trustees in a webinar I recently, lowering risk (52%) came out top.
When it comes to trustee risk, there are two types – good risk and bad risk.
In my mind, ‘good risk’ is just part of the price of entry into the game. It;'‘s the commercial risk inherent in the services you provide to the market. The trick is to identify potential risk and put plans in place to mitigate it.
It’s bit like investing. You have to take risk and be invested in the market to get the returns of the market. One way you mitigate investment risk is by diversifying the type of investments you hold.
For professional trustees, good risk is balanced off the potential rewards (for example, the commercial revenue received for professional trusteeship). A strategy for diversifying trustee risk is through good practice.
Most bad risk I see is related to professional trustee conduct.
Bad risk generally arises by not thinking about, or doing the job that the trustee is responsible for. The way I see it, bad risk is unnecessary risk.
Here are five areas of focus for good practice that I know work and will help trustees reduce risk:
PURPOSE: Know the purposes of the trust, understand and interpret the trust instrument correctly, ensure trust creator wishes are in place and kept up to date.
PEOPLE: Trustees have relationships with co-trustees, beneficiaries, trust creators and advisers. It requires good communication and management of expectations.
PROPERTY: As a steward of property for the benefit of others, the focus has to be on ensuring property is owned correctly, secure, reviewed, insured, invested and suitable for the trust.
POLICY: Areas to focus for trustee policy include investment, distribution, conflicts, disclosure of interests or information to beneficiaries, reporting and risk.
PRACTICE: This is about how trustees do things and make good decisions. Areas of focus include annual reviews, decision-making, meetings, record keeping, reporting, accounting, systems and advice.
When it comes to lowering trustee risk, good practice works!
What's your standard of practice?
Define what you stand for and know what ‘good’ looks like for you.
Trust good practice.
Lindsay