When Trust Administration Depends on One Person
When fiduciary firms talk about continuity risk, you will hear about backups and cybersecurity. Reasonable answers. But the thing most likely to interrupt trust administration next quarter is probably not a server outage. It is one person being unreachable for three weeks.
The person is not the failure point. The failure point is a practice that depends on what only that person knows.
Pick the person who knows the most about how your trusts actually run. Starting tomorrow, they are out. Not gone forever, just unavailable, on vacation or leave for a few weeks.
What stops?
For most practices, the honest answer is that a lot slows down and a few specific things stop entirely.
What knowledge lives only in one person’s head?
The knowledge that becomes unavailable when that person does is rarely written anywhere, because it never felt like knowledge that needed to be documented. It felt like knowing how things work.
- Which accounts do not reconcile cleanly from the custodian feed, and what the workaround is
- Why a distribution two years ago was coded to principal rather than income
- Which beneficiary needs a phone call before a statement lands in their mailbox
- Where a fee schedule departs from the standard, and what file explains why
- The order things have to happen in at year-end, and which custodian is always late
None of this is unusual. In fact, it is often the natural result of a practice growing around people who are very good at their jobs.
Over time, expertise becomes dependency unless the knowledge behind that expertise makes its way into the record.
That is the difference between administration that keeps moving and administration that stalls when someone is unavailable.
Why is undocumented knowledge a fiduciary risk, not just an operations risk?
In most industries, losing institutional knowledge costs time and money. Someone rebuilds the process, the company absorbs the delay, and life goes on.
Fiduciary work has a second cost.
Your duty runs to the beneficiary, and it does not adjust for the fact that the person who made a decision no longer works there. When a beneficiary questions a discretionary distribution from two years ago, the file either supports the decision or it does not.
“The prior administrator had a good reason” is not an answer you can give a court.
That surfaces another layer of the risk. The question is not only what slows down while someone is unavailable, but what the organization can prove about the decisions that person has already made.
If you work alone, the same risk still exists
Independent trustees are not immune to key person risk. Plenty of professional fiduciaries administer fifteen or forty trusts by themselves, and for them the issue is not that a colleague leaves.
There is no colleague.
Two things follow.
The first is successor trusteeship. Whatever is not written down is what your successor will eventually have to reconstruct, potentially without the option of asking you.
The second is closer to home.
Your memory of why you did something in March of 2024 is not what it was in March of 2024. In a small way, you are already your own successor.
Four questions worth asking about your practice
- Could someone else produce a court accounting for your largest trust next week using only what is in the system today?
- Is the reasoning behind your last three discretionary distributions written down, or remembered?
- If a custodian connection breaks, does anyone besides one person know how it was set up?
- When a beneficiary asks about a transaction from two years ago, where does the answer come from?
If the answers keep pointing back to one person, the risk is not that person. It is that too much of the practice depends on knowledge that has never made it into the record.
And that is not unusual. It is often the default state of a practice that grew by people being good at their jobs.
How do you reduce key person risk in trust administration?
The right software systems are part of the answer, but not the complete answer.
A system helps when it makes recording the reasoning the path of least resistance rather than an extra task at the end of a long day.
If the note about why a distribution was discretionary sits in the same place as the transaction, it gets written. If it sits in a separate document someone has to remember to open, it often does not.
But a system nobody uses the way it was intended changes nothing. Practices with good software and poor documentation habits are common.
The real work is deciding that the record, rather than a person’s memory, is where the knowledge lives, and then choosing tools that make that decision easy to maintain.
A property line does not live in the neighbor’s memory of where the fence used to be. It lives in the recorded survey, which is why it still holds when both neighbors are gone.
The same principle applies to fiduciary administration.
The goal is not to make experienced people less important. It is to preserve the judgment and knowledge that make them important so the practice can continue without depending on their availability.
So if you handed your trusts to someone else on Monday, what would they have to come ask you?
See how ProTrustee could help reduce your key person risk. Book a ProTrustee demo today.
In two weeks we are publishing an evaluation scorecard for fiduciary software, including the questions that tell you whether a system captures reasoning or just transactions.